Banking/Financial Institutions

The Securities and Exchange Commission outlined a plan Thursday to clarify the process for breaking erroneous trades in another response to the May 6 "flash crash." 

The new rules would make it clearer when, and at what prices, trades would be broken, the SEC said in a release. 

The proposal creates a series of thresholds for breaking trades when prices diverge from the "reference price," typically the last sale before pricing was disrupted. On May 6, the exchanges only broke trades that were more than 60 percent away from the reference price in a process that was not transparent to market participants.

New York City Mayor Michael Bloomberg urged Congress to drop two of the most controversial parts of the Wall Street overhaul, arguing they would hurt the country and send jobs overseas.

In a letter to Congress, Bloomberg took aim particularly at provisions backed by Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.) and Obama administration adviser Paul Volcker. Bloomberg, the billionaire former Wall Street executive and founder of Bloomberg LP, called both proposals "short-sighted." Bloomberg did not refer to Lincoln or Volcker by name.

Bloomberg said Lincoln's provision to separate conventional banking from derivatives dealing should be removed from the bill. "The prohibition would force swaps into less regulated entities, increasing systemic risk by pushing transactions into the very 'shadow market' which played such a large role in the recent crisis," Bloomberg said.

Bloomberg's letter comes as 43 centrist House Democrats urged lawmakers finalizing the regulatory bill to also remove the Lincoln provision. New York Democratic Reps. Mike McMahon and Gary Ackerman are also organizing the state congressional delegation to oppose the measure. 

The Lincoln proposal aims to prevent federal emergency assistance from helping derivatives dealers. Lincoln clarified her provision this week to say umbrella bank holding companies could own derivatives dealers but only if they are separated from routine banking operations. 

The issue is one of the most heavily lobbied aspects of the bill and is strongly opposed by the financial industry.

The Volcker rule would seek to bar commercial banks from engaging in proprietary trading, or trading for its own accounts rather than for its clients.

"Banning it here would only send those jobs to London, Hong Kong and other cities," Bloomberg said. "Limiting the capacity of banks to generate profits through proprietary trading will lead to decreased lending, which will hurt people trying to buy homes or invest in their small businesses."

Thirteen Democrats opposed a measure Thursday that would create a $30 billion fund to boost lending to small businesses struggling to get credit.

The bill, backed by three Republicans, passed the House on a 241-182 vote. It is designed to help small businesses hire and expand operations during the economic downturn. 

Opponents of the bill called it "TARP III" and argued the legislation doesn't require banks to lend to small businesses. 

The three Republicans were Reps. Joseph Cao (La.), Mike Castle (Del.) and Walter Jones (N.C.). 

Of the 13 Democrats voting against the bill, nine are members of the Blue Dog Coalition. They include Reps. Marion Berry (Ark.), Allen Boyd (Fla.), Bobby Bright (Ala.), Jim Cooper (Tenn.), Kathy Dahlkemper (Pa.), Harry Mitchell (Ariz.), Stephanie Herseth Sandlin (S.D.), Gene Taylor (Miss.) and Mike Thompson (Calif.). The other four were Reps. Lloyd Doggett (Texas), Chet Edwards (Texas), Jared Polis (Colo.) and Dina Titus (Nev.). 

The $30 billion fund could provide as much as $300 billion in lending to small businesses, according to the Independent Community Bankers of America. 

"The Small Business Lending Fund is a fresh, bold new program that will go a long way toward aiding our nation’s economic recovery in cities and towns throughout America," said ICBA Chairman Jim MacPhee, CEO of Kalamazoo County State Bank in Schoolcraft, Mich., in a statement.

More than 60 House Democrats are pushing for an exemption for auto dealers from new consumer financial protection regulations under the Wall Street overhaul bill.

The House included an exemption when it passed its version of the legislation in December, despite vigorous opposition from the Obama administration. The Senate bill does not include the carve-out from the jurisdiction of the new consumer protection regulator.

But the Senate passed a non-binding motion to support the exemption.

In a letter this week, 62 House Democrats urged lawmakers in the final conference on the bill to include the exemption.

"The House bill recognized that auto dealers are retailers who do not service, fund, or underwrite auto loans, but merely facilitate financing to help their customers purchase a vehicle," the lawmakers wrote. They argue auto dealers would continue to be regulated by the Federal Trade Commission and other federal and state regulators. "We believe the balance achieved in the House bill is an appropriate compromise that will ensure auto dealers can still offer optional dealer-assisted financing while maintaining strong consumer protections."

The letter was organized by New York Reps. Bill Owens and Mike McMahon. Among those signing are Debbie Wasserman Schultz (Fla.), Gary Ackerman (N.Y.), Steve Driehaus (Ohio) and David Wu (Ore.).

The National Automobile Dealers Association has lobbied heavily for the exemption. The White House, Defense Department and Treasury Department have argued against the exemption.

The 43-member conference of lawmakers finalizing the bill is set consider the issue next week.

Nearly 70 percent of all pending FBI mortgage fraud investigations during fiscal 2009 involved dollar losses totaling more than $1 million, according to a report released Thursday.  

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A group of 43 centrist House Democrats urged lawmakers against a controversial Wall Street overhaul provision restricting banks' derivatives trading.

The provision, championed by Senate Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.), is among the most controversial issues remaining in the bill, which lawmakers are finalizing this month. 

The provision would bar banks that receive federal assistance from also trading derivatives. The provision would be phased in over two years and also allow bank holding companies to own swaps desks but only as separately capitalized entities.

The 43 members are part of the 69-member New Democrat Coalition. They argue the provision would increase risk in the financial system and push the multitrillion-dollar market to less regulated entities.

Democrats signing the letter are: Melissa Bean (Ill.), Joseph Crowley (N.Y.), Allyson Schwartz (Pa.), Ron Kind (Wis.), Adam Smith (Wash.), Scott Murphy (N.Y.), Mike McMahon (N.Y.), Jim Himes (Conn.), Artur Davis (Ala.), Jason Altmire (Pa.), Michael Arcuri (N.Y.), Brian Baird (Wash.), Russ Carnahan (Mo.), Chris Carney (Pa.), Andre Carson (Ind.), Gerald Connolly (Va.), Diana DeGette (Colo.), Steve Driehaus (Ohio), Eliot Engel (N.Y.), Bob Etheridge (N.C.), Bill Foster (Ill.), Gabrielle Giffords (Ariz.), Charles Gonzalez (Texas), Debbie Halvorson (Ill.), Jane Harman (Calif.), Jay Inslee (Wash.), Steve Israel (N.Y.), Ron Klein (Fla.), Suzanne Kosmas (Fla.), Frank Kratovil (Md.), Rick Larsen (Wash.), Dan Maffei (N.Y.), Carolyn McCarthy (N.Y.), Kendrick Meek (Fla.), Jim Moran (Va.), Ed Perlmutter (Colo.), Jared Polis (Colo.), Laura Richardson (Calif.), Loretta Sanchez (Calif.), David Scott (Ga.), Joe Sestak (Pa.), Debbie Wasserman Schultz (Fla.) and David Wu (Ore.).

House Democratic leaders said Republicans who oppose the small business bills this week are backing Wall Street over Main Street.

"This is different from TARP," Speaker Nancy Pelosi (D-Calif.) told reporters Wednesday, referring to the program passed in the midst of the financial collapse to save banks. "One would have hoped TARP would have done many more things that we have envisioned when we passed it here."

The members say they have "serious concerns" about the provision sponsored by Sen. Blanche Lincoln (D-Ark.).

Lee Farkas led what was once the largest non-depository mortgage lender in the country.

The two companies would need to take steps to shore up their share prices to meet stock exchange rules.