Bank Systems & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Compliance

10:24 AM
Connect Directly
RSS
E-Mail
50%
50%

Why Must Finance Reform Cost $19 Billion?

Yesterday Congress got rid of a large-bank tax that would have raised $19 billion to pay for the new sweeping financial legislation that has passed the House and will be put to vote in the Senate sometime after July 4. It is easy to understand why Congress dropped this assessment - Republications said they would not pass the law with the bank tax in it. The legislation will now be paid for with unused TARP funds and higher FDIC assessments.

Yesterday Congress got rid of a large-bank tax that would have raised $19 billion to pay for the new sweeping financial legislation that has passed the House and will be put to vote in the Senate sometime after July 4. It is easy to understand why Congress dropped this assessment - Republications said they would not pass the law with the bank tax in it. The legislation will now be paid for with unused TARP funds and higher FDIC assessments.But why does the bill, intended to fix the lax oversight that allowed the subprime mortgage crisis to take place, need to cost $19 billion? With 2 million Americans due to lose their unemployment benefits by July 12 and the U.S. economy in a weak recovery, why should taxpayers have to pay such a high price to encourage bank regulators in their work?

We turned for answers to the latest version of the finance reform bill itself, to see what the $19 billion is designed to pay for. The only mention of $19 billion is at the end, where the legislation still contains language about the $19 billion assessment that was thrown out yesterday. We did find the following expense items in the bill:

-The bill appropriates $40 million in grants to states (over the next five years) to take measures, such as investigations and education, to protect older people from being misled by purveyors of financial products.

-The SEC is authorized to receive $8.8 billion over the next five years (but it is expected to collect much of this in fees from its members, so we're not going to count this in the total).

-The to-be-created Bureau of Consumer Financial Protection (formerly known as the Consumer Financial Protection Agency) is authorized to receive $200 million a year ($1 billion total) over the next five years; the agency director will need to make a case for receiving these funds in an annual report.

-The Department of Housing and Urban Development is due to receive $9 million to spend on a national public service multimedia campaign to educate consumers about mortgages and home ownership, $180 million to provide home ownership and rental counseling, $1 billion for an emergency homeowner relief fund, $1 billion to redevelop abandoned and foreclosed homes, and $70 million to provide grants to those providing legal assistance for foreclosure-related issues.

I'm no math or legal expert, but when I add these up, I get $23 billion in spending, some of which will be spread out over the next two to five years. But only $1 billion will be used to directly help underwater mortgage holders, and each homeowner can receive a maximum of only $50,000. In this country, according to the Fed, there's about $14.55 trillion in mortgages outstanding and the total mortgage delinquency rate is 9%, according to the Mortgage Bankers Association. So by my reckoning, $1.3 trillion is at stake in troubled mortgages, some of which will be addressed by the Home Affordable Modification Program. Will the provisions of this bill somehow take care of the rest? It seems unlikely.

Register for Bank Systems & Technology Newsletters
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.