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An Important Milestone Reached in Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act

The Financial Stability Oversight Council took a number of important steps to fulfill its mandate under Dodd-Frank Wall Street Reform and Consumer Protection Act. As established under the Dodd-Frank Act, the Council will provide, for the first time, comprehensive monitoring to ensure the stability of our nation’s financial system. The Council is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States financial system.

The Council approved each of the documents and resolutions put forward. These include: (1) the Council’s Bylaws; (2) the Council’s Transparency Policy; (3) an Advance Notice of Proposed Rulemaking (ANPR) on designating nonbank financial companies for heightened supervision; (4) a Notice and Request for Information regarding the Council’s “Volcker Rule” study and recommendations; and (5) an Integrated Implementation Roadmap for both the Council and its independent member agencies.

The Council’s Bylaws

The Council’s bylaws set forth the manner and procedures by which that body will be governed.  They provide for a collaborative governance structure that promotes accountability for the work of the Council. 

The Council’s Transparency Policy

The member agencies of the Council share a collective desire to bring efficiency and transparency to the financial reform implementation process.  The transparency policy approved today ensures that the Council will engage stakeholders in an open process based on consistent principles of transparency and accountability.  The Council adopted a transparency policy that will include open meetings as appropriate, with provisions to close meetings in situations where the discussion includes market sensitive or confidential supervisory information.

ANPR Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies

The Dodd-Frank Act gives the Council a mandate to designate systemically important nonbank financial firms for heightened supervision, in order to ensure that these institutions cannot escape tough oversight or threaten the stability of the broader financial sector. The ANPR is an initial step in the process by which the Council intends to develop a robust and disciplined framework for the designation of nonbank financial companies for heightened supervision.  The ANPR consists of fifteen questions to solicit public comment regarding the implementation of these provisions and will have a 30-day public comment period. The ANPR will inform development of a specific regulatory proposal expected to be published for comment near year-end, with Final Council action on the designation criteria and process is expected by March 31, 2011.  

Notice and Request for Information Regarding the Council’s “Volcker Rule” Study and Recommendations

The Dodd-Frank Act requires the Council to conduct a study and make recommendations by January 22, 2011, to inform coordinated agency rulemaking on the “Volcker Rule.”  The Volcker Rule will help improve the safety of our nation’s banking system by prohibiting proprietary trading activities and certain private fund investments. The Notice and Request for Information (RFI) provides an effective mechanism for soliciting public and industry input during the development of the Council’s formal study and recommendations.  The RFI will have a 30-day public comment period. 

Integrated Implementation Roadmap

The “Integrated Implementation Roadmap” outlines a coordinated timeline of goals, both of the Council and its independent member agencies, to fully implement the Dodd-Frank Act. This roadmap is the product of a mutual effort to provide transparency as financial regulatory agencies move forward with financial reform.  This roadmap includes statutory deadlines as well as non-statutory targets for agency work that may be updated over time. 

In attendance at the Council meeting were:

• Tim Geithner, Treasury Secretary (Chairperson of the Council);
• Sheila Bair, Chairman of the Federal Deposit Insurance Corporation;
• Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System;
• Edward DeMarco, Acting Director of the Federal Housing Finance Agency;
• Gary Gensler, Chairman of the Commodity Futures Trading Commission;
• Debbie Matz, Chairman of the National Credit Union Administration ;
• Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission;
• John Walsh, Acting Comptroller of the Currency;
• William Haraf, Commissioner, California Department of Financial Institutions (non-voting member); and
• John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional Registration (non-voting member);
• David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of State, Securities Division (non-voting member).

The U.S. Departments of Treasury and State released the following statement from Secretary Tim Geithner and Secretary Hillary Clinton on The Republic of Korea’s adoption of new sanctions against Iran:

“The United States welcomes the announcement by the Republic of Korea of new sanctions on Iran as part of its implementation of UNSCR 1929.  With this action, the Republic of Korea joins an emerging consensus of states that have taken steps to demonstrate to Iran the consequences of its failure to meet its international obligations.  These actions strengthen the growing international resolve to prevent proliferation and Iran’s development of nuclear weapons and to press Iran to return to serious negotiations on its nuclear program and meet its international obligations.

“We welcome in particular the Republic of Korea’s decision to impose sanctions in a number of Iranian economic sectors that have been exploited for proliferation-related purposes by entities and individuals of concern – including the Islamic Revolutionary Guard Corps, the Islamic Republic of Iran Shipping Lines, and several Iranian financial institutions linked to Iranian nuclear, missile, and other destabilizing programs – and the establishment of a prior authorization system for financial transactions with Iran.  The Republic of Korea’s robust inspections framework, its prohibition on the export of strategic, controlled items, and its prohibition of new investments or sale of goods, services, and technology to Iran’s energy sector will also further limit Iran’s ability to conduct its illicit activities. We recognize and appreciate that, given Iran’s significant trade with the Republic of Korea, this decision to robustly implement UN Security Council Resolution 1929 is not without cost. And we appreciate the steps the Republic of Korea is taking today to protect its financial and commercial systems from the threat posed by Iran.

“The United States has taken unprecedented steps to engage with Iran, and we reaffirm our strong commitment to seeking a diplomatic solution to the international community’s ongoing concerns over the Iranian nuclear program.  Additional pressure on Iran’s leaders is essential to making clear the choice Iran faces and to achieving the goal of a diplomatic resolution.  The United States encourages other states to join this growing international consensus and take the necessary steps to ensure comprehensive implementation of UNSCR 1929.”

The U.S. Department of the Treasury today designated Europäisch­-Iranische Handelsbank (EIH), one of the few remaining European banks actively facilitating business with Iranian banks and handling billions of dollars worth of transactions on their behalf. Today’s action was taken pursuant to Executive Order (E.O.) 13382, which blocks the property of designated weapons of mass destruction (WMD) proliferators and their supporters, thereby isolating them from the U.S. financial system.

Headquartered in Hamburg, Germany, EIH provides financial services to Bank Mellat, Persia International Bank, the Export Development Bank of Iran and Post Bank of Iran, all previously designated by Treasury pursuant to E.O. 13382 and by the European Union.

“EIH has acted as a key financial lifeline for Iran.  As one of Iran’s few remaining access points to the European financial system, EIH has facilitated a tremendous volume of transactions for Iranian banks previously designated for proliferation,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “As international sanctions tighten, Iran will find it increasingly difficult to find banks like EIH that will cooperate with it. Treasury will continue to target any bank, wherever located, that supports Iran’s nuclear or missile programs.”

EIH has facilitated Iran’s proliferation activities on a series of occasions. Examples include:

• In 2009, EIH and Bank Mellat facilitated nearly $350,000 of business between a weapons exporter and a subsidiary of WMD proliferator Iran Electronics Industries (IEI).
• In 2007, EIH and Bank Mellat facilitated a transaction of more than $250,000 directly between IEI and the same arms exporter.
• In a six-month period beginning in late 2007, EIH and the Export Development Bank of Iran enabled Iran’s missile programs to purchase more than $3 million of material.
• Also in 2007, almost $1 million in business involving an Iranian WMD proliferator was facilitated by EIH and Bank Mellat.

EIH also engages in the type of deceptive practices that have become the hallmark of Iranian government-controlled financial institutions. In addition to providing financial services to Iranian WMD proliferators described above, EIH actively obscures Iranian involvement in the process.

Not only has EIH provided financial services to Bank Mellat, the two banks also share leadership. Ali Divandari has served as EIH Deputy Chairman of the Board and Bank Mellat’s Chairman and Managing Director and was designated by Treasury under E.O. 13382 in November 2009 and by the EU in July 2010.

Bank Mellat was designated as a supporter of the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company in October 2007. Persia International Bank, a Bank Mellat subsidiary, was also designated in October 2007 for being owned or controlled by Bank Mellat. The AEOI, which reports directly to the Iranian president, is the main Iranian organization for research and development of nuclear technology and manages fissile material production programs. Novin Energy, AEOI’s financial conduit, has transferred millions of dollars on behalf of AEOI to entities associated with Iran’s nuclear program. Both AEOI and Novin Energy are designated by Treasury under E.O 13382 and by the United Nations Security Council in Resolution 1747.

The Export Development Bank of Iran was designated by Treasury in October 2008 pursuant to E.O. 13382 for providing or attempting to provide financial services to the Iranian Ministry of Defense and Armed Forces Logistics (MODAFL), which was previously designated by the Department of State pursuant to E.O. 13382 in October 2007.

Treasury designated the Post Bank of Iran pursuant to E.O. 13382 in June 2010 for providing financial services to, and acting on behalf of, Bank Sepah since its designation by Treasury in January 2007 for its support and services to Iran’s missile industries and subsequent designation by the United Nations Security Council in March 2007.

EIH is the first financial institution designated by Treasury for facilitating Iran’s proliferation activities since the Department issued the Iranian Financial Sanctions Regulations on August 16, 2010 to implement the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010. Under these regulations, Treasury may prohibit, or impose strict conditions on, foreign financial institutions’ access to the U.S. financial system for facilitating significant transactions or providing significant financial services for a financial institution designated by the U.S. – such as EIH – in connection with Iran’s WMD proliferation or support for international terrorism.  EIH is the 17th financial institution designated by the United State for such activities.

The United States has closely consulted with the German government in taking today’s action against EIH and is aware that the German government is also taking steps under its national authorities.

IRS Also Announces How Tax-Exempt Organizations Will Claim Credit

The Internal Revenue Service released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations – which do not generally file income tax returns – will claim the credit during the 2011 filing season.

The IRS has posted a draft of Form 8941 on IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations – even those that owe no tax on unrelated business income – also to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later this year.

The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.  The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

WASHINGTON – In an op-ed piece for the McClatchy-Tribune News Service, Treasury Chief Economist and Assistant Secretary for Economic Policy Alan Krueger writes about the impact of the HIRE Act on private-sector hiring and the continued economic recovery.  To read the op-ed piece online, see link below.  The full text of the piece follows.

The Treasury Department today also released an updated report on the number of newly hired workers who are eligible for tax credits under the HIRE Act.   Nationally, from February 2010 to July 2010, businesses have hired an estimated 6.9 million new workers who had been unemployed for eight weeks or longer, making those businesses eligible to receive billions in HIRE Act tax credits.  The updated report also contains state-by-state estimates and regional breakdowns by industry of hiring of eligible workers.

Measure succeeds in promoting private-sector hiring

Labor Day is an occasion to honor and celebrate American workers. The opportunity to work in a decent job gives people and society benefits beyond the income it generates. Conversely, unemployment causes workers and their families distress beyond their loss of income.

Job growth was weak throughout the 2000s, and the past few years unquestionably have been difficult for American workers, as the financial crisis and subsequent recession destroyed jobs at an alarming rate. When President Barack Obama took office, the country was losing 750,000 jobs a month, and more than 7.5 million jobs have been lost since the recession began in late 2007. Although the economy has started to recover and layoffs have declined from their peak, hiring remains too slow to provide enough jobs for the growing workforce.

Since day one, the Obama administration’s top priority has been to create the conditions needed for the private sector to create jobs for American workers. Although major legislation, like the Recovery Act – which the nonpartisan Congressional Budget Office estimates has saved or created 2 million to 4.8 million jobs – gets most of the attention, the administration and Congress have taken numerous additional steps to support job growth and help unemployed Americans.

These efforts include assisting states to retain teachers and pay Medicaid costs, the “cash for clunkers” program, an unprecedented expansion of unemployment insurance benefits, and business tax incentives. In addition to all of this support, the administration is actively pursuing legislation for additional tax cuts and better access to capital for small businesses.

A notable example of a targeted measure to boost the economy is the Hiring Incentives to Restore Employment, or HIRE, Act of 2010. In his state of the union address, President Obama called on Congress to create a tax incentive to encourage private sector employers to increase their payrolls. Congress responded with the HIRE Act, which exempts private employers from paying the employer portion of Social Security payroll taxes for newly hired workers who have been unemployed for 60 days or longer. As an added incentive, employers can receive up to an additional $1,000 tax credit for each of the newly hired workers they retain for 52 weeks.

The HIRE Act expires at the end of this year, so employers have a stronger incentive to increase their hiring sooner rather than later.

Analysis suggests that the HIRE Act is working. According to recent data, employers hired some 6.9 million unemployed workers who are eligible for HIRE Act tax relief through July. Moreover, preliminary evidence suggests that employers have already claimed tax credits for about one in every four eligible workers hired. This reduces the payroll tax payments employers send to the federal government, leaving them with more money to expand their businesses.

While not all of these jobs were created solely because of the HIRE Act, economist Mark Zandi of Moody’s Analytics estimated that one-quarter of a million additional jobs will be added because of the HIRE Act. Even as the unemployment rate remains stubbornly high, employers across the country are claiming the HIRE Act tax credits and hiring individuals who were previously out of work.

It is not just the numbers that point to the success of the HIRE Act. The HIRE Act switches the focus from job loss to job creation. Many businesses are excited by the opportunity to hire workers they may not have been able to hire otherwise.

After being forced to impose a hiring freeze in the beginning of 2009, James Barba, the CEO of the Albany Medical Center in Albany, NY, said the HIRE Act “gave us immediate tax relief … of hundreds of thousands of dollars, and frankly, made my job considerably easier in deciding that we would hire people again.”

The HIRE Act supports the hiring of workers who have faced the greatest difficulty in the job market, and gives employers more of an incentive not only to hire them but also to keep them on the payroll. The program encourages private sector job growth, which is essential to get the economy back on track.

It is an example of the kind of temporary, targeted and responsible economic policy that has been the hallmark of this administration.

That so many eligible unemployed workers have been hired so far is a testament to the dynamism of the American job market and the resourcefulness of American workers and businesses even in a time when unemployment is unacceptably high. That gives us another reason to celebrate the American worker on this Labor Day.

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