Entries in Dodd-Frank Act (3)


FDIC Seeks to End ‘Too Big to Fail’ Bailouts

STAN HONDA/AFP/Getty Images(WASHINGTON) -- The U.S. government has launched a plan to deal with large failed companies that could touch off another Lehman-like disaster, hoping to prevent instability in the financial markets.

The Federal Deposit Insurance Corporation’s (FDIC) acting chairman Martin Gruenberg on Thursday outlined steps that the federal financial agency will take to allow the subsidiaries of a failed financial institution to operate while taking over a parent company -- without a taxpayer bailout in accordance with the Dodd-Frank Act.

In the event of a failing or failed institution, Gruenberg said the FDIC’s resolution strategy has three key goals.

“The first is financial stability, ensuring that the failure of the firm does not place the financial system itself at risk,” Gruenberg said in his prepared remarks in Chicago at the Federal Reserve Bank of Chicago’s Bank Structure Conference. “The second is accountability, ensuring that the investors in the failed firm bear the firm’s losses.”

James Chessen, chief economist with the American Bankers Association, said Gruenberg and the FDIC sent an “important” message to investors that there is an agency prepared to deal with a troubled, systemically important institution so disruptions will be minimal but investors will take losses.

“I think it’s clearly a message that says that if you’re expecting the government to protect your investment in a large financial firm, you should readjust your thinking,” Chessen said. “The plan is not to protect you and you should take care in really analyzing the risk of your investment.”

The third goal of the FDIC’s strategy is “viability” by converting the failed firm through a “receivership process,” similar to the manner in which the FDIC converts a failed, federally insured depository institution to another working bank.

The FDIC’s new strategy deals directly with these large financial companies, or “systematically important financial institutions” (SIFI), which critics describe as “too big to fail.” Those include a number of the rescued companies during the recent recession, like American International Group Inc. The U.S. government rescued AIG in 2008 with $125 billion in taxpayer money, and this week the Government Accountability Office released an estimate that the government could make a profit of $15.1 billion from the bailout.

The Group of 20′s enforcement agency, the Financial Services Board, published a list of about 30 SIFIs in November, which include eight American companies. Those banks face a number of requirements, including submitting a plan by the end of 2012 detailing how their businesses should be spun off if they collapse.

“By definition, these are institutions whose failure could, if not handled effectively, have ripple effects in the economy,” Chessen said. "The goal is to understand how you would resolve that.”

Copyright 2012 ABC News Radio


SEC Pressured to Implement CEO to Worker Pay Disclosure

Andrew Harrer/Bloomberg via Getty Images(NEW YORK) -- Danny Stauffer of Milwaukee has been working as a baker at Walmart for almost five years.  His salary is $9.40 an hour, up from a starting wage of $7.11.

Stauffer, 26, said has tried to work full-time at the company, but hasn't had success.

"I actually like the work I do," he said.  "The people I work with, the work itself -- they're all great.  It just doesn't pay the bills."

A provision of the Dodd-Frank financial regulatory reform act proposes that public companies disclose the ratio of the CEO's pay to that of the median salary of company workers.  But two years after Dodd-Frank was passed, the Securities and Exchange Commission (SEC) has not yet implemented the rule or initiated the rule-making process.  Business groups have opposed the rule, while advocates for corporate reform have pressured the regulatory agency to work quickly.

Stauffer, who is a member of the Walmart employees group, OURWalmart, said he would support the Dodd-Frank provision to provide more disclosure to not only shareholders, but to the chief executive officers of companies across the U.S.

"Obviously there's only one of them and a lot of us, but it shows how hard we have to work, how much profit there is to go around, and how little we see," Stauffer said.  "It does not make me happy that the CEO gets to enjoy such a great life off of our labor."

Stauffer said he dropped out of college because he struggled to keep up with his tuition on his income.  He said he has tried to find a second job to support himself while living in a basement and receiving public assistance.

If Stauffer was working full-time for 40 hours a week, he would make about $18,800 a year.

The total compensation for Walmart's CEO Michael Duke was $18.7 million, a drop of 2.7 percent, for the last fiscal year which ended in January 2011, the company reported last April.  His salary increased 2.4 percent to $1.2 million.

Based on just Duke's salary and not his total compensation, the ratio would be 63.8 to one.  But based on Duke's total compensation, the ratio would be 994.7 to one.

In a statement to ABC News, Walmart said: "When you look at pay, benefits and opportunities for advancement, Walmart offers some of the best jobs in the retail industry. Last year, we promoted more than 161,000 associates and roughly three-fourths of our store management teams started out in hourly positions with the company."

"It's important to note that 'OURWalmart' is a union-backed, union-funded organization attempting to further its own political and financial agenda," the statement continued. "They do not represent our associates at any of our locations. We've seen other places where they have pitched associates to media for stories and, largely, the experiences they offer up typically don't reflect the norm within our base of 1.2 million associates in the U.S."

"You are correct in saying $12.14 is the average hourly wage for a full-time associate hourly associate in a Wisconsin Walmart store. The current average wage, nationally, for a full-time associate is $12.40," Walmart said.

The company said it hasn't taken a position on the pay disclosure rule.

Sen. Robert Menendez, D-N.J., the author of the provision Section 953(b), and other members of Congress, signed letters to the SEC chairwoman Mary Schapiro last week urging the agency to move forward with the rule-making process.

"It might embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker, but that's important information for both investors and workers to know," he told ABC News.

Copyright 2012 ABC News Radio


Beyond Debt Ceiling, Housing Market Still Greatest Threat to Financial Stability

Stockbyte/Thinkstock(WASHINGTON) -- With only one week left before the Treasury Department’s Aug. 2 debt ceiling deadline, fears of another financial meltdown are reverberating through the country. Those are the very fears the Financial Stability Oversight Council are seeking to quell.

The council, which was established under the Dodd-Frank financial reform act, released its first annual report Tuesday showcasing how the Dodd-Frank Act has already increased stability in the financial market and identifying areas that are still vulnerable to another financial crisis.

But regardless of what reforms are put in place, Treasury Secretary Timothy Geithner stressed that the number-one issue threatening financial markets right now is the debt ceiling.

“The most important thing we can do right now to safeguard financial stability is lift the cloud of default hanging over our economy,” Geithner said in a statement. “As we move forward, however, we must also work to ensure that our regulatory framework keeps pace with the evolving global financial system. This report provides key recommendations that will build on the progress we’ve made through the Dodd-Frank Act and further strengthen the resilience of the financial markets.”

Aside from quickly raising the debt ceiling, the housing market still poses the most risk to the financial system’s stability, according to the report. The council suggests further regulation of home loans, strengthening mortgage underwriting and reform in the housing finance systems to help stabilize the housing market.

“An enormous amount of progress has been made,” one senior Treasury official said. “It is now a question of perfecting, rather than starting from square one.”

The council is required by the Dodd-Frank Act to issue this annual report to Congress outlining potential emerging threats to America’s financial stability, make recommendations for promoting market discipline and detail any activity the council makes.

Copyright 2011 ABC News Radio

ABC News Radio