The Raleigh Democrat has co-sponsored a bill that would create a one Financial Product Safety Commission instead of 10 agencies that oversee lending now, the N&O reports.

WASHINGTON – President Barack Obama is urging key members of Congress to write tough new financial industry regulations to prevent crises and protect consumers.

Obama called for new accountability, transparency and trust in the financial markets. Among his main principles for the legislation, he said, is that government better monitor the scale and scope of risks that institutions take.

The president made his remarks Wednesday after meeting with the top Democrats and Republicans from the two House and Senate committees that will take the lead in writing the legislation. Central to the new regulatory effort are the unregulated esoteric financial instruments that have been blamed for Wall Street’s free fall last year.

WASHINGTON- The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says.

The Congressional Oversight Panel, in a report released Friday, said last year’s overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.

The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.

In December, in response to questions from the oversight panel, Paulson wrote that the value of preferred stock purchased by the government was “at or near par,” meaning Treasury paid $1 for every $1 dollar of asset.

“The way the Treasury secretary described it does not fit with the numbers that were produced in our much more extensive valuation analysis,” panel chairwoman Elizabeth Warren told reporters Friday. “The secretary of the Treasury described it in December that these were par transaction and that is not supported by the numbers.”
 
The continued scrutiny comes as new Treasury Secretary Timothy Geithner prepares to place the Obama administration’s imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Geithner plans to unveil the changes Monday.

And while Paulson is gone and Geithner is in charge, the program itself remains in the hands of Neel Kashkari, a holdover from the Bush administration.

In December, Kashkari defended the Treasury purchasing strategy as bank stock prices dropped.

“We’re not day traders, and we’re not looking for a return tomorrow,” he said. “Over time, we believe the taxpayers will be protected and have a return on their investment.”

In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month. Wells Fargo, which received a $25 billion infusion, has already announced it would pay Treasury $371 million in dividends this month.

The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit. That money went to banks considered “healthy” financially but in need of capital to make loans.

Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies that were facing serious financial difficulties.

Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury used taxpayers’ money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating to the more than 300 institutions that received money, the panel concluded that the government in effect paid $78 billion more than the actual value of the assets at the time.

“Treasury chose to offer ‘one size fits all’ pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition,” the report states. “A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants.”

Reacting to the panel’s conclusions, Treasury spokesman Isaac Baker said in a statement: “Treasury’s efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars.”

He said the plan Geithner will announce Monday aims to free up credit, “while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it’s achieving real results.”

Senate Banking Chairman Chris Dodd, D-Conn., said the overpayment was sure to “raise eyebrows.”

“I can understand some gap,” he said. “No one is expecting perfection between the price you pay and what you think you’re getting. But that’s a pretty large disparity.”

WASHINGTON, D.C. – U.S. Senator Kay R. Hagan (D-N.C.) released the following statement in reaction to an Associated Press investigation that found “major U.S. banks sought permission to bring thousands of foreign workers into the country for high-paying jobs, even as the system was melting down last year and Americans were getting laid off.”

“The AP report that U.S. banks increased their applications to hire foreign workers for high-paying jobs in positions such as senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists, at the same time they were announcing massive layoffs, is a cause for concern. Based on the unfortunate layoffs we have seen week-after-week in the banking industry, it stands to reason that American banks should not have trouble finding experienced, well-qualified American workers. At a time when banks are receiving billions in taxpayer dollars, any new hiring they do should be concentrated on that pool of those American workers who already live in their local communities.”

Banks based in North Carolina have accepted more money from the Treasury Department’s rescue package than financial institutions in any state except New York, the nation’s financial capital.

With President Barack Obama promising to reshape the $700 billion Troubled Assets Relief Program before distributing the second half of the funding, details are emerging about how North Carolina banks are using the money received in the first round of payouts.

Since the program’s creation last fall, 20 North Carolina-based banks have accepted a total of $48.6 billion through TARP. The vast majority — $45 billion — went to Bank of America in Charlotte, the nation’s largest bank. The remaining funds went to institutions across North Carolina.

The TARP program was designed to loosen frozen credit markets that made it difficult for consumers and businesses to obtain loans.

Some North Carolina banking executives said in interviews this week they used the funds to increase lending. Others also funded acquisitions of other banks or used the extra cash to shore up capital reserves, uses that were not specifically prohibited by Treasury and in some cases were encouraged by Bush administration officials.

Republican and Democratic members of Congress and Obama have criticized the way the Bush administration handled the program. Obama has promised major changes when the $350 billion left under the program is distributed.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, and other critics have complained about the low level of disclosure required of banks on how they use the money.

And he and others have accused Bush administration Treasury officials and some banks that received TARP funds of “distorting” the intent of the legislation by using the government money to buy other banks, pay out lavish bonuses and buy private jets — any use other than making loans.

Several North Carolina CEOs said that despite the push by the government to increase lending, the poor economy makes it difficult to find people and businesses who want to risk their current financial status for loans. The smaller pool of potential borrowers also was less likely to meet more rigorous lending standards that have came about over the last year.

“Not as many people are borrowing right now. They’re drawing back in and waiting for a turn in optimism before going forward with their plans,” said Scott Bauer, the chairman and chief executive of Southern Community Financial Corp. in Winston-Salem.

The bank received $42.8 million in December. Bauer said he plans to leverage it — borrow against it to bring in more capital — to make more loans. He said the bank has not ruled out using the money to “assume the assets of banks that might not make it.”

“We feel we have a fiduciary responsibility to use these funds prudently,” Bauer said.

Yadkin Valley Financial Corp. CEO Bill Long said that the bank is putting half the $36 million it received in January toward its $92 million cash and stock purchase of American Community Bancshares Inc. of Charlotte, a deal announced in September.

Long said the move made financial sense because it meant the Elkin bank would not have to borrow as much to finance the deal.

As for the rest, “Our goal with the money is to use it for growth in the communities we serve, such as loan growth,” he said. “It’s hard to determine where each dollar of that capital purchase is going since we just received the money on Jan. 23.”

Ted Ashby, CEO of Surrey Bank & Trust in Mount Airy, said his bank’s loan volume has increased over the last three months. He attributed the spike in part to new customers since the demise of some specialty lenders — those that focused on the trucking industry, for example. The bank received $2 million in January.

Ashby said tight credit markets have made it difficult to sell some loans to larger lenders. That forced the bank to keep more loans on its books, which requires larger capital reserves.

Like other North Carolina TARP beneficiaries, his bank was well capitalized before the government money arrived, Ashby said.

“In tough times like this, I’m not sure you can have too much capital,” Ashby said.

Other community banks said they had seen a spike in lending demand as interest rates have fallen, especially mortgage refinancing.

Roger Dick, president and CEO of Uwharrie Capital Corp. in Albemarle, said he expects to close over 125 single-family home loans in January, almost triple the volume in an average month. The company, which operates community banks in several counties, received $10 million in December. Dick said the bank could leverage it to make 10 times that amount in loans.

“The Catch 22 is that there’s not always good loan demand out there. People say, `loan this money right away.’ My response is to say, ‘be patient and let us do it in a prudent way.’ If not, it could cause more problems,” Dick said.

But, he said, “We’re doing what I think we’re supposed to be doing with the money, loaning it back to our community.”

Several large banks have been criticized for paying hefty bonuses to executives while staying silent about their lending activities.

When asking Congress to release the rest of the TARP funds, the Obama economic team indicated it would force greater disclosure about lending activities, limit purchases of other banks by recipients and impose stricter limits on executive compensation. The coming changes prompted some executives who received funding under the old rules to step up lending disclosure.

Bank of America said Wednesday that it would begin publishing tracking reports on its lending activities.

The Breakdown

State …………………..Sum received from Troubled Assets Relief Program

NY …………………$145.16 Billion

NC …………………… 48.55 Billion

CA …………………..27.37 Billion

MI …………………..21.18 Billion

PA ……………………. 8.77 Billion

OH ……………………..7.72 Billion

MN ……………………….7.00 Billion

GA ……………………..6.14 Billion

VA ……………………..4.04 Billion

AL ……………………..3.63 Billion

Source: Media General analysis of U.S. Treasury Department data

WASHINGTON – The head of the Senate Banking Committee on Tuesday asked regulators to report frequently to the panel on their progress to improve fraud detection after their failure to discover the multibillion-dollar pyramid scheme allegedly hatched by disgraced financier Bernard Madoff.

At a hearing, Sen. Christopher Dodd, the Connecticut Democrat who is the committee’s chairman, closely questioned the enforcement director of the Securities and Exchange Commission and another SEC official as well as the interim chief executive of the Financial Industry Regulatory Authority, the securities industry’s self-policing organization.

“What’s happened here?” Dodd asked. He said he wanted action “very quickly in this area.” He asked the regulators to report every three months to the committee on improvements they were making.
  
Linda Thomsen, the SEC’s enforcement director, said the agency is committed to finding ways to bolster fraud detection after its breakdown in the Madoff case. While the agency needs to improve its internal processes for pursuing cases, she said the SEC also needs authority to regulate parts of the financial system that escape oversight and more funding to carry out more investigations.

“While we always do our utmost to do more with less, if we had more resources, we could clearly do more,” Thomsen testified at the hearing, which was Congress’ first opportunity to question federal regulators responsible for inspecting investment firms and taking enforcement action against fraud.

Lori Richards, who heads the SEC’s inspections office, said agency officials are thinking “expansively and creatively” about changes that could improve the detection of fraud.

But Sen. Richard Shelby of Alabama, the banking panel’s senior Republican, said that generally in cases of failure, regulators’ natural reaction “is to cry lack of resources.”
 
The SEC has faced heavy criticism over its failure to discover the $50 billion Ponzi scheme allegedly run by Madoff, the prominent Wall Street figure and money manager now fallen into disgrace – despite credible allegations against him that were brought to the agency over the course of a decade. Against the backdrop of the worst financial crisis since the 1930s, the SEC also is accused of contributing to that disaster with lax oversight of Wall Street and the markets. Lawmakers of both parties are calling for a shake-up of the agency to help restore investor confidence.

Also appearing before the banking panel Tuesday was Stephen Luparello, the interim chief executive of the Financial Industry Regulatory Authority, the securities industry’s self-policing organization.
  
Dodd recently asked Mary Schapiro – President Barack Obama’s newly confirmed chairman of the SEC – about the failure of the industry regulatory organization to detect the alleged Madoff fraud in its inspections of his brokerage operation. Schapiro, who has led FINRA since 2006, said that the matter went undiscovered because the scheme was carried out through Madoff’s investment business and FINRA was empowered to inspect only the brokerage operation.

Christopher Cox, then the chairman of the SEC, last month pinned the blame on the agency’s career staff for the failure since at least 1999 to detect what Madoff was doing. He ordered the SEC’s inspector general, H. David Kotz, to determine what went wrong. Kotz told a House hearing recently that he was expanding the inquiry to examine the operations of the divisions led by Thomsen, who has been the enforcement chief since mid-2005, and Richards, who has held that position since mid-1995.
 
Kotz has also been examining the relationship between a former SEC attorney, Eric Swanson, and Madoff’s niece, Shana, who are now married. As an SEC attorney, Swanson was part of a team that examined Madoff’s brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff, a former chairman of the Nasdaq Stock Market who was a member of SEC advisory committees.
  
Lawmakers say Madoff’s alleged fraud, which caused massive damage to investors large and small around the world and may be the largest pyramid scam in history, reflects deep, systemic problems at the SEC.

Six weeks after Madoff’s arrest in New York, thousands of victims who lost money investing with him have been identified – including ordinary people and Hollywood celebrities – as well as big hedge funds, international banks and charities in the U.S., Europe and Asia.