Transcript Slide 1

Emerging From The Financial Crisis
Fernando A. Capablanca
WSG Annual Meeting 2009
San Jose, Costa Rica
November 12, 2009
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Industry Trends
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Industry Trends – Real Estate
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Industry Trends – Lending
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Industry Trends – Lending
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Industry Trends – Lending
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Industry Trends – Net Income
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Industry Trends – Retained Earnings
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Industry Trends – Capital
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Industry Trends – Bank Failures (2000 -2009)
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Regulatory Reform – What to expect in 2010 and
beyond
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Overview of Current Programs
• Troubled Asset Relief Program – Generally available to healthy institutions until
December 31, 2009 / new monies may be available to banks who qualify
•Legacy Loan Program – Public/Private Investment Program
•First one closed August 31, 2009
•Really just a mechanism to participate in LLCs with FDIC that will hold assets of
failed institutions
•Not really a mechanism to buy bad assets from “troubled banks”
•Extension of $250,000/Unlimited Deposit Insurance Continues
•Sheila Bair has taken to YouTube to assure the public
•With the 1989 banking crisis – over 500 banks
•Temporary Liquidity Guarantee Program
•$329.5 billion issued
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Sweeping Reform
• Obama Administration White Paper - Issued June 17, 2009 and includes plan for
reform of the U.S. financial and securities markets
•President Obama has described the proposed reforms as a “sweeping overhaul of the
financial regulatory system, a transformation on a scale not seen since the reforms
that followed the Great Depression.”
• June 15th op-ed piece in The Washington Post, Treasury Secretary Timothy Geithner
and National Economic Council director Lawrence Summers wrote that the reforms will
help to create a “more stable, flexible and effective regime that guards the system
against its own excess”
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Obama Administration White Paper
White Paper sets out five key objectives of the restructuring proposal:
• promoting robust supervision and regulation of financial firms;
• establishing comprehensive supervision and regulation of financial markets;
• protecting consumers and investors from financial abuse;
• improving the ability to manage financial crises; and
• enhancing international regulatory standards and cooperation.
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6 Essential Elements of Proposal
1. Creating a Consumer Financial Protection Agency to protect consumers,
funded by assessments on the institutions it regulates;
2. Imposing higher capital standards, calling for a “fundamental reassessment”
of regulatory capital requirements for banks and bank holding companies
(BHCs);
3. Granting new regulatory authority to the Federal Reserve, including the
supervisory responsibility for all “systemically significant firms,” regardless of
whether they are or are owned by BHCs;
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6 Essential Elements of Proposal
4. Building a way to wind up nonbank financial institutions the failure of which
threatens the stability of the system;
5. Establishing a single supervisor for all national banks, the National Bank
Supervisor, an agency with separate status within the Treasury; and
6. Creating a Financial Services Oversight Council intended to prevent
regulatory gaps, coordinate regulation and identify risks in the activities of
financial firms and markets.
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Other Aspects of Proposed Reforms
• Office of National Insurance;
• Securitization markets;
• Hedge funds;
• Derivative markets;
• Financial crisis management; and
• International supervision.
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Four Principal Specific Proposals
• Consumer
Financial Protection Agency (CFPA)
• Executive Compensation
• National Bank Supervisor
• Systemic Risk
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CEPA Authority
-The CFPA would be the primary regulator for federal financial consumer protection laws.
- Will have authority to gather information, require reports and perform examinations.
- Would have jurisdiction over anyone who provides financial products or services, or who
provides material services to such a person, not just to traditional banks. Much of this
authority is now in the hands of the Federal Trade Commission.
- Probably will have authority to require financial reporting by firms that do not report to
other federal agencies
- Would like not pre-empt state laws except if state laws are weaker than the newly
proposed Federal laws
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Executive Compensation
• This has been area which has had most developments since proposal
• Draft legislation was presented in July by White House
• The proposed bill targets compensation committees and say-on-pay
provisions
• TARP had strong provisions on executive compensation with significant
limitations on bonuses and golden parachutes
• FDIC and other federal banking regulators are taking a very aggressive
approach to golden parachute and severance arrangements
• Federal Reserve’s issuance last week
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Compensation Committees
• Legislation requires that public company compensation committee meet strict new
standards for independence
• Compensation committees have the authority and funding to hire independent
compensation consultants, outside counsel and other advisers who can help ensure that
the committee bargains for pay packages in the best interests of shareholders.
• If the compensation committee decides not to use an independent compensation
consultant, it must explain that decision to the shareholders
• While these provisions are not applicable to non-public banks – there is such a
movement to lower compensation of bank executives – this could very well be imposed
upon banks
• To the extent a bank is analyzing executive compensation, Board would be well-served
to use this legislation as guide, including use of independent consultants
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Systemic Risk Regulation Bill
•The Obama administration delivered its next piece of draft reform legislation to
Congress on July 22, 2009.
•The proposal called for strong and consolidated supervision and regulation for
financial firms.
•The legislation was designed to put into place a “regulatory regime” that would
monitor, mitigate and respond to risks in the financial system.
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Key Provisions
The proposal included a number of key provisions. The draft legislation would:
• Create a Financial Services Oversight Council that would facilitate the coordination of
financial regulatory policy and resolution of disputes and identify emerging risks in
financial markets;
• Subject financial firms that are found to pose a threat to U.S., designated as Tier 1
financial holding companies (FHCs), to “strong, consolidated supervision and regulation”
by the Fed, regardless of whether they own insured depository institutions;
• Require Tier 1 FHCs to be well-capitalized and well-managed and on a consolidated
basis in order to significantly raise capital standards;
• Close loopholes in the Bank Holding Company Act;
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Key Provisions (continued)
• Require federal bank regulators and the SEC to issue regulations providing
that the securitizer of an asset-backed security must retain 5 percent of the
credit risk of the underlying assets;
• Give the Fed Reserve strong statutory authority to oversee systemically
important payment, clearing and settlement activities and systems; and
• Require prior written approval of the Treasury Secretary for lending by the
Federal Reserve under its emergency lending authority.
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Acknowledgement:
• We wish to acknowledge the help provided by Dr. Alcides Avila of the law firm
Avila Rodriguez Hernandez Mena & Ferri LLP in Coral Gables, FL in the
preparation of this presentation.
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