Emerging From The Financial Crisis

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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

1. Building a way to wind up nonbank financial
   institutions the failure of which threatens the
   stability of the system
2. Establishing a single supervisor for all national
   banks, the National Bank Supervisor, an agency
   with separate status within the Treasury and
3. 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 Reserves 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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