FORMER WASTE MANAGEMENT CFO ORDERED TO PAY $25 MLLION

Te folowing excerpt is fromthe SEC website: July 29, 2011 Former CFO of Waste Management Ordered to Pay $2.5 Million The Securities and Exchange Commission announced today that on July 28, 2011, the United States District Court for the Northern District of Illinois entered an Amended Final Judgment against James E. Koenig, the former Chief Financial Officer of Waste Management Corporation, ordering that he pay $2.5 million in SEC v. James E. Koenig, 02 C 2180 (N.D. Ill. filed Mar. 26, 2002). Koenig was ordered to make an upfront payment of $1.25 million and to pay the remaining $1.25 million in regular installments over the next two years. The Commission’s complaint alleged that beginning in 1992 and continuing into 1997, Koenig and others engaged in a systematic scheme to falsify and misrepresent Waste Management’s financial results with profits being overstated by $1.7 billion. In June 2006, after an 11-week trial, a jury returned a verdict in the Commission’s favor against Koenig on all 60 violations charged, including securities fraud, falsifying company books and records, making false statements in filings with the Commission, lying to auditors, and aiding and abetting the company’s violations. On December 21, 2007, following a two-day bench trial on remedies, the district court entered a Final Judgment against Koenig that permanently barred him from acting as an officer or director of a public company, and enjoined him from violating, or aiding and abetting violations of, Sections 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934; Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; and Section 17(a) of the Securities Act of 1933. The judgment also required Koenig to pay disgorgement, prejudgment interest, and civil penalties. On February 26, 2009, the U.S. Court of Appeals for the Seventh Circuit affirmed all issues of liability and trial procedure, but remanded for further proceedings with respect to the monetary amount of the judgment. On November 23, 2009, the district court on remand reaffirmed its prior Final Judgment, and Koenig appealed. The Amended Final Judgment represents a compromise reached through mediation before the Seventh Circuit’s Settlement Conference Office while the case was on appeal. The permanent officer and director bar and injunction remain unchanged and in full force and effect."

5 GO TO PRISON FOR A@O RESOURSE MANAGEMENT LTD. FRAUD SCHEME

The following case is an excerpt from the Department of Justice website: July 22, 2011 "WASHINGTON – Five employees for A&O Resource Management Ltd. and various related entities – including two executives – were sentenced today for their roles in a $100 million fraud scheme with more than 800 victims across the United States and Canada. The sentences were announced by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division. The five individuals were sentenced by U.S. District Judge Robert E. Payne. Russell E. Mackert, 52, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, 36, former owner and founder of A&O, was sentenced to 120 months in prison; David White, 41, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, 47, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, 69, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison. “The impact of this massive fraud on many of A&O’s investor victims has been disastrous,” said U.S. Attorney MacBride. “Hundreds of elderly investors invested their life savings with A&O and saw it all vanish in an instant. These investors were not looking for quick cash, just a safe alternative to invest their retirement funds. The safety, security, and no-risk nature of the investment was critical to the sales pitch, and it was all a big fat lie.” “Brent Oncale and his co-conspirators operated a sham investment company that turned fraud and deceit into a business model,” said Assistant Attorney General Breuer. “They stole millions from hundreds of unsuspecting investors, pocketing huge sums for themselves. Today’s sentences reflect the severity of these cowardly and costly crimes.” All five men pleaded guilty in the fall of 2010 and early 2011 for their roles in the fraud scheme at A&O, which falsely marketed life settlement products to investors, many of whom were elderly. The conspirators at A&O defrauded investors by making misrepresentations about A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. When state regulators began to scrutinize A&O’s investment products, conspirators manufactured a sham sales transaction to “sell” A&O to an offshore shell corporate entity named Blue Dymond and later to another offshore shell corporate entity named Physician’s Trust. However, A&O and Physician’s Trust was still secretly controlled by A&O principals and their conspirators. On June 6, 2011, the hedge fund manager of A&O, Adley H. Abdulwahab, 35, of Houston, was convicted by a jury in Richmond, Va., of one count of conspiracy to commit mail fraud, five counts of mail fraud, one count of conspiracy to commit money laundering, five counts of money laundering and three counts of securities fraud. A founder of A&O, Christian Allmendinger, 39, was convicted by a jury on March 23, 2011, of one count of conspiracy to commit mail fraud, two counts of mail fraud, one count of conspiracy to commit money laundering, two counts of money laundering and one count of securities fraud. Abdulwahab is scheduled to be sentenced on Sept. 28, 2011, and Allmendinger is scheduled to be sentenced on Aug. 14, 2011. They face up to 20 years in prison on each count except the securities fraud counts, on which they face up to five years in prison. This investigation was conducted by the U.S. Postal Inspection Service, Internal Revenue Service, and FBI, with significant assistance from the Texas State Securities Board and the Virginia Corporation Commission. These cases are being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica Aber Brumberg from the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr., of the Criminal Division’s Fraud Section. The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force."

FORMER HEDGE FUND MANAGER TO PAY $1 MILLION PENALTY

The following case is an excerpt from the CFTC website: “Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges that Christopher Louis Pia of North Castle, N.Y., while employed as portfolio manager for Moore Capital Management, LLC (Moore Capital), attempted to manipulate the settlement prices of palladium and platinum futures contracts on the New York Mercantile Exchange (NYMEX). Moore Capital is a predecessor of Moore Capital Management, LP. The CFTC order requires Pia to pay $1 million civil monetary penalty. It also permanently bans Pia from trading CFTC-regulated products during the closing period of the markets and from trading CFTC-regulated products in platinum and palladium. The order further requires Pia to distribute a copy of the CFTC order to current investors and to current and future employees, principals, and officers and to provide a disclosure document setting out the CFTC action to existing and prospective clients. The CFTC order finds that, from at least November 2007 until May 2008 (relevant period), Pia attempted to manipulate the settlement prices of palladium and platinum futures contracts by engaging in a trading practice known as “banging the close.” Specifically, Pia caused to be entered market-on-close buy orders that were executed in the last ten seconds of the closing period for both contracts in an attempt to exert upward pressure on the settlement prices of the futures contracts. Pia engaged in this trading strategy at Moore Capital frequently throughout the relevant period, the order finds. According to CFTC Division of Enforcement Director David Meister: “To protect market participants and promote market integrity, individuals who attempt to manipulate commodity prices must and will be held personally accountable. As demonstrated by today's action, the Commission will not hesitate to impose significant sanctions on such traders.” The CFTC order further requires that a monitor ensures Pia’s compliance with the order for a five-year period and establishes undertakings related to any entity Pia owns or controls. The order also imposes registration conditions if Pia or any of his entities become registered with the CFTC for a period of five years from the date of the order. Within 120 days of the issuance of the order, Pia must submit a report to the Commission on his compliance with the undertakings required in the order. On April 29, 2010, the CFTC issued an order filing and settling similar charges of attempted manipulation of platinum and palladium futures settlement prices in 2007 – 2008 and supervisory violations against Moore Capital Management, LP (MCM), Moore Capital Advisors, LLC (MCA), both based in New York, N.Y., and Moore Advisors, Ltd. (MA), a Bahamian entity. The CFTC order required MCM, MCA, and MA jointly and severally to pay a $25 million civil monetary penalty and placed restrictions on their CFTC registrations, including a two-year restriction on trading during the closing periods of the palladium and platinum futures and options markets (see CFTC Press Release 5815-10, April 29, 2010). The CFTC thanks the CME Group, the parent company of the NYMEX, for its assistance.”

CFTC CHAIRMAN TESTIFIES BEFORE HOUSE COMMITTEE ON AGRICULTRE

"Testimony Before the U.S. House Committee on Agriculture, Washington, DC Chairman Gary Gensler June 21, 2011 Good afternoon Chairman Lucas, Ranking Member Peterson and members of the Committee. I thank you for inviting me to today’s hearing on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). I am pleased to testify on behalf of the Commodity Futures Trading Commission (CFTC). I also thank my fellow Commissioners and CFTC staff for their hard work and commitment on implementing the legislation. Financial Crisis One year ago, the President signed the Dodd-Frank Act into law. And on this anniversary, it is important to remember why the law’s derivatives reforms are necessary. The 2008 financial crisis occurred because the financial system failed the American public. The financial regulatory system failed as well. When AIG and Lehman Brothers faltered, we all paid the price. The effects of the crisis remain, and there continues to be significant uncertainty in the economy. Though the crisis had many causes, it is clear that the derivatives or swaps market played a central role. Swaps added leverage to the financial system with more risk being backed by less capital. They contributed, particularly through credit default swaps, to the bubble in the housing market and helped to accelerate the financial crisis. They contributed to a system where large financial institutions were thought to be not only too big to fail, but too interconnected to fail. Swaps – developed to help manage and lower risk for end-users – also concentrated and heightened risk in the financial system and to the public. Derivatives Markets Each part of our nation’s economy relies on a well-functioning derivatives marketplace. The derivatives market – including both the historically regulated futures market and the heretofore unregulated swaps market – is essential so that producers, merchants and end-users can manage their risks and lock in prices for the future. Derivatives help these entities focus on what they know best – innovation, investment and producing goods and selling and services – while finding others in a marketplace willing to bear the uncertain risks of changes in prices or rates. With notional values of more than $300 trillion in the United States – that’s more than $20 of swaps for every dollar of goods and services produced in the U.S. economy – derivatives markets must work for the benefit of the American public. Members of the public keep their savings with banks and pension funds that use swaps to manage interest rate risks. The public buys gasoline and groceries from companies that rely upon futures and swaps to hedge swings in commodity prices. That’s why oversight must ensure that these markets function with integrity, transparency, openness and competition, free from fraud, manipulation and other abuses. Though the CFTC is not a price-setting agency, recent volatility in prices for basic commodities – agricultural and energy – are very real reminders of the need for common sense rules in all of the derivatives markets. The Dodd-Frank Act To address the real weaknesses in swaps market oversight exposed by the financial crisis, the CFTC is working to implement the Dodd-Frank Act’s swaps oversight reforms. Broadening the Scope Foremost, the Dodd-Frank Act broadened the scope of oversight. The CFTC and the Securities and Exchange Commission (SEC) will, for the first time, have oversight of the swaps and security-based swaps markets. Promoting Transparency Importantly, the Dodd-Frank Act brings transparency to the swaps marketplace. Economists and policymakers for decades have recognized that market transparency benefits the public. The more transparent a marketplace is, the more liquid it is, the more competitive it is and the lower the costs for hedgers, which ultimately leads to lower costs for borrowers and the public. The Dodd-Frank Act brings transparency to the three phases of a transaction. First, it brings pre-trade transparency by requiring standardized swaps – those that are cleared, made available for trading and not blocks – to be traded on exchanges or swap execution facilities. Second, it brings real-time post-trade transparency to the swaps markets. This provides all market participants with important pricing information as they consider their investments and whether to lower their risk through similar transactions. Third, it brings transparency to swaps over the lifetime of the contracts. If the contract is cleared, the clearinghouse will be required to publicly disclose the pricing of the swap. If the contract is bilateral, swap dealers will be required to share mid-market pricing with their counterparties. The Dodd-Frank Act also includes robust recordkeeping and reporting requirements for all swaps transactions so that regulators can have a window into the risks posed to the system and can police the markets for fraud, manipulation and other abuses. On July 7, the Commission voted for a significant final rule establishing that clearinghouses and swaps dealers must report to the CFTC information about the swaps activities of large traders in the commodity swaps markets. For decades, the American public has benefited from the Commission’s gathering of large trader data in the futures market, and now will benefit from this additional information to police the commodity swaps markets. Lowering Risk Other key reforms of the Dodd-Frank Act will lower the risk of the swaps marketplace to the overall economy by directly regulating dealers for their swaps activities and by moving standardized swaps into central clearing. Oversight of swap dealers, including capital and margin requirements, business conduct standards and recordkeeping and reporting requirements will reduce the risk these dealers pose to the economy. The Dodd-Frank Act’s clearing requirement directly lowers interconnectedness in the swaps markets by requiring standardized swaps between financial institutions to be brought to central clearing. This week, the Commission voted for a final rule establishing a process for the review by the Commission of swaps for mandatory clearing. The process provides an opportunity for public input before the Commission issues a determination that a swap is subject to mandatory clearing. The Commission will start with those swaps currently being cleared and submitted to us for review by a derivatives clearing organization. Enforcement Effective regulation requires an effective enforcement program. The Dodd-Frank Act enhances the Commission's enforcement authorities in the futures markets and expands them to the swaps markets. The Act also provides the Commission with important new anti-fraud and anti-manipulation authority. This month, the Commission voted for a final rule giving the CFTC authority to police against fraud and fraud-based manipulative schemes, based upon similar authority that the Securities and Exchange Commission, Federal Energy Regulatory Commission and Federal Trade Commission have for securities and certain energy commodities. Under the new rule, the Commission’s anti-manipulation reach is extended to prohibit the reckless use of fraud-based manipulative schemes. It closes a significant gap as it will broaden the types of cases we can pursue and improve the chances of prevailing over wrongdoers. Dodd-Frank expands the CFTC's arsenal of enforcement tools. We will use these tools to be a more effective cop on the beat, to promote market integrity and to protect market participants. Position Limits Another critical reform of the Dodd-Frank Act relates to position limits. Position limits have been in place since the Commodity Exchange Act passed in 1936 to curb or prevent excessive speculation that may burden interstate commerce. In the Dodd-Frank Act, Congress mandated that the CFTC set aggregate position limits for certain physical commodity derivatives. The law broadened the CFTC’s position limits authority to include aggregate position limits on certain swaps and certain linked contracts traded on foreign boards of trade, in addition to U.S. futures and options on futures. Congress also narrowed the exemptions for position limits by modifying the definition of a bona fide hedge transaction. When the CFTC set position limits in the past, the purpose was to ensure that the markets were made up of a broad group of market participants with a diversity of views. Market integrity is enhanced when participation is broad and the market is not overly concentrated. Commercial End-User Exceptions The Dodd-Frank Act included specific exceptions for commercial end-users, and the CFTC is writing rules that are consistent with this congressional intent. First, the Act does not require non-financial end-users that are using swaps to hedge or mitigate commercial risk to bring their swaps into central clearing. The Act leaves that decision up to the individual end-users. Second, there was a related question about whether corporate end-users would be required to post margin for their uncleared swaps. The CFTC has published proposed rules that do not require such margin. And third, the Dodd-Frank Act maintains the ability of non-financial end-users to enter into bilateral swap contracts with swap dealers. Companies can still hedge their particularized risk through customized transactions. Rule-Writing Process The CFTC is working deliberatively, efficiently and transparently to write rules to implement the Dodd-Frank Act. Our goal has been to provide the public with opportunities to inform the Commission on rulemakings, even before official public comment periods. We began soliciting views from the public immediately after the Act was signed into law and during the development of proposed rulemakings. We sought and received input before the pens hit the paper. We have hosted 13 public roundtables to hear ideas from the public prior to considering rulemakings. On August 1, we will host another public roundtable to gather input on international issues related to the implementation of the law. Staff and commissioners have held more than 900 meetings with the public, and information on these meetings is available at cftc.gov. We have engaged in significant outreach with other regulators – both foreign and domestic – to seek input on each rulemaking, including sharing many of our memos, term sheets and draft work product. CFTC staff has had about 600 meetings with other regulators on Dodd-Frank implementation. The Commission holds public meetings, which are also webcast live and open to the press, to consider rulemakings. For the vast majority of proposed rulemakings, we have solicited public comments for 60 days. In April, we approved extending the comment periods for most of our proposed rules for an additional 30 days, giving the public more opportunity to review the whole mosaic of rules at once. We also set up a rulemaking team tasked with developing conforming rules to update the CFTC’s existing regulations to take into account the provisions of the Dodd-Frank Act. This is consistent with a requirement included in the President’s January executive order. In addition, we will be examining the remainder of our rulebook consistent with the executive order’s principles to review existing regulations. The public has been invited to comment by August 29 on the CFTC’s plan to evaluate our existing rules. This spring, we substantially completed the proposal phase of rule-writing. Now, the staff and commissioners have turned toward finalizing these rules. To date, we held two public commission meetings this month and approved eight final rules. In the coming months, we will hold additional public meetings to continue to consider finalizing rules, a number of which I will highlight. In August, we hope to consider a final rule on swap data repository registration. In the early fall, we are likely to take up rules relating to clearinghouse core principles, position limits, business conduct and entity definition. Later in the fall, we hope to consider rules relating to trading, real-time reporting, data reporting and the end-user exemption. We will consider most of the rules with comment periods that have yet to close, including capital and margin requirements for swap dealers and segregation for cleared swaps, sometime in subsequent Commission meetings. The comment period for product definitions closes tomorrow, and working with the SEC, we will take them up as soon as it is practical. As the Commission continues with its rulemaking process, the Commission is taking great care to adhere to the requirement that the public be provided meaningful notice and opportunity to comment on a proposed rule before it becomes final. Therefore, depending on the circumstance -- such as when the Commission may be considering whether to adopt a particular aspect of a final rule that might not be considered to be the logical outgrowth of the proposed rule -- the Commission may determine that it would be appropriate to seek further notice and comment with respect to certain aspects of proposed rules. For example, in response to comments received on a proposed rule regarding the processing of cleared swaps, the Commission this week re-proposed aspects of this rule regarding the prompt, efficient and accurate processing of trades. The Dodd-Frank Act set a deadline of 360 days for the CFTC to complete the bulk of our rulemakings, which was July 16, 2011. Last week, the Commission granted temporary relief from certain provisions that would otherwise apply to swaps or swap dealers on July 16. This order provides time for the Commission to continue its progress in finalizing rules. Phasing of Implementation The Dodd-Frank Act gives the CFTC flexibility to set effective dates and a schedule for compliance with rules implementing Title VII of the Act, consistent with the overall deadlines in the Act. The order in which the Commission finalizes the rules does not determine the order of the rules’ effective dates or applicable compliance dates. Phasing the effective dates of the Act’s provisions will give market participants time to develop policies, procedures, systems and the infrastructure needed to comply with the new regulatory requirements. In May, CFTC and SEC staff held a roundtable to hear directly from the public about the timing of implementation dates of Dodd-Frank rulemakings. Prior to the roundtable, CFTC staff released a document that set forth concepts that the Commission may consider with regard to the effective dates of final rules for swaps under the Dodd-Frank Act. We also offered a 60-day public comment file to hear specifically on this issue. The roundtable and resulting public comment letters will help inform the Commission as to what requirements can be met sooner and which ones will take a bit more time. This public input has been very helpful to staff as we move forward in considering final rules. We are planning to request additional public comment on a critical aspect of phasing implementation – requirements related to swap transactions that affect the broad array of market participants. Market participants that are not swap dealers or major swap participants may require more time for the new regulatory requirements that apply to their transactions. There may be different characteristics amongst market participants that would suggest phasing transaction compliance by type of market participant. In particular, such phasing compliance may relate to: the clearing mandate; the trading requirement; and compliance with documentation standards, confirmation and margining of swaps. Our international counterparts also are working to implement needed reform. We are actively consulting and coordinating with international regulators to promote robust and consistent standards and to attempt to avoid conflicting requirements in swaps oversight. Section 722(d) of the Dodd-Frank Act states that the provisions of the Act relating to swaps shall not apply to activities outside the U.S. unless those activities have “a direct and significant connection with activities in, or effect on, commerce” of the U.S. We are developing a plan for application of 722(d) and will seek public input on that plan in the fall. Conclusion Only with reform can the public get the benefit of transparent, open and competitive swaps markets. Only with reform can we reduce risk in the swaps market – risk that contributed to the 2008 financial crisis. Only with reform can users of derivatives and the broader public be confident in the integrity of futures and swaps markets. The CFTC is taking on a significantly expanded scope and mission. By way of analogy, it is as if the agency previously had the role to oversee the markets in the state of Louisiana and was just mandated by Congress to extend oversight to Alabama, Kentucky, Mississippi, Missouri, Oklahoma, South Carolina, and Tennessee – we now have seven times the population to police. Without sufficient funds, there will be fewer cops on the beat. The agency must be adequately resourced to assure our nation that new rules in the swaps market will be strictly enforced -- rules that promote transparency, lower risk and protect against another crisis. Until the CFTC completes its rule-writing process and implements and enforces those new rules, the public remains unprotected. Thank you, and I’d be happy to take questions."

SEC CHAIRMAN SPEAKS ON SHELF-ELIGIBILITY REQUIREMENTS FOR ASET-BACKE SECURITIES

The following is an excerpt from the SEC website: "Opening Statement at SEC Open Meeting: Item 3 — Shelf-Eligibility Requirements for Asset-Backed Securities by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. July 26, 2011 Next, we will consider re-proposing rules outlining the requirements for an issuer of asset-backed securities to be able to use shelf registration. Today’s actions partially re-propose a set of rules the Commission proposed in April 2010 that would significantly revise the regulatory regime for asset backed securities. Among other things, the 2010 proposals were designed to increase transparency and to improve the quality of securities that are offered through the shelf registration process. Subsequent to our proposal, Congress — through the Dodd-Frank Act — sought to address some of the same concerns and we have reevaluated the proposals in light of those provisions. The proposals today also take into consideration suggestions from commenters on the April proposal. Today the staff is recommending that we re-propose shelf eligibility requirements for ABS issuers and seek additional comment on certain parts of our April 2010 proposal. As we consider a final set of rules, we will look to the rules we proposed in 2010 as well as the revisions to those proposals we are considering today. The proposals include three shelf eligibility requirements: First, the proposal would require an executive officer of the issuer to certify that the securitization is designed to produce cash flows at times and in amounts sufficient to service expected payments on the asset-backed securities being offered and sold. In addition, the executive officer would certify to the accuracy of the disclosure. This is similar to our 2010 proposal. However, to address comments we received, the re-proposed rules would offer an alternative signatory to the certification and revise the text of the certification. Second, the proposal would require the issuer to adopt a dispute resolution procedure outlining the way in which to resolve disputes over requests to repurchase assets in the pool under the terms of the transaction agreements. Also, to address concerns about the enforceability of representations and warranties, the proposal would require that an independent party in certain specified situations must confirm compliance of the assets with the representation and warranty provisions in the underlying agreements. We continue to believe that a mechanism to better enforce representations and warranties is needed to address the failures that plagued this market. Third, the proposal would require that the issuer agree to make it possible for investors to communicate with each other. This would address comments we received that some ABS investors have had difficulty locating other investors. Subsequent to the Commission’s 2010 proposals, the Dodd-Frank Act required rules that would direct sponsors to retain some of the risk associated with the ABS. The Act also eliminated the ability of ABS issuers to avail themselves of an automatic suspension from ongoing reporting. As such, this proposal at this time does not include the risk retention or continuous reporting conditions to shelf we originally included in the April 2010 proposal. Additionally, in the April proposal we proposed that ABS issuers must file standardized information about the specific loans in the pool, allowing investors to have better, more timely and usable information. Because we received many helpful and detailed suggestions in this area, the release requests additional comment about possible alternatives. I am aware that commentators have expressed concerns about certain aspects of the informational requirements for our safe harbor provisions included in the April proposal. Today’s release requests additional comment in this area as well. Finally, the release requests comment on whether the April proposal effectively implements a Dodd-Frank requirement that the Commission adopt rules requiring disclosure of the assets that back a security. I believe it is very important that we move forward to finalize our new registration and reporting rules for the ABS market. But I also want to make sure we get it right. I’m very pleased that the staff has recommended that we publish this re-proposal so that we can solicit the input we need to make these decisions. I very much look forward to receiving the public’s constructive comments on this release and moving to closure on this critically important project."

STATEMENT OF MARTIN J. GRUENBERG, ACTING CHAIRMAN FEDERAL DEPOSIT

The following statement is an excerptfrom the FDIC website: Statement of Martin J. Gruenberg, Acting Chairman, Federal Deposit Insurance Corporation on Enhanced Oversight after the Financial Crisis: Wall Street Reform at One Year before the Committee on Banking, Housing and Urban Affairs, United States Senate; 538 Dirksen Senate Office Building July 21, 2011 Chairman Johnson, Ranking Member Shelby and members of the Committee, thank you for the opportunity to testify today on the one year anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In the wake of the most severe episode of financial distress and the longest economic recession since the 1930s, the Dodd-Frank Act provides regulators with important new authorities to enhance financial stability and to respond to the regulatory challenges posed by large, complex systemically-important financial institutions (SIFIs). For example, the Dodd-Frank Act grants the Federal Deposit Insurance Corporation (FDIC) new authorities to manage the Deposit Insurance Fund (DIF) in a way that will make it more resilient in any future crisis. The Act also provides for a new SIFI resolution framework, including an Orderly Liquidation Authority and a requirement for SIFI resolution plans, which will give regulators much better tools with which to manage the failure of large, complex institutions. Finally, the Dodd-Frank Act also contains provisions that will complement the ongoing Basel III reforms that will make capital requirements more uniformly strong across the banking system. My testimony today will focus specifically on the implementation of these Dodd-Frank provisions to enhance the future stability of our financial system. Promoting Stability by Strengthening the Deposit Insurance Fund The FDIC has moved quickly to implement the Dodd-Frank Act changes in the FDIC deposit insurance program. These changes will help to ensure that coverage is sufficient to preserve public confidence in a crisis, that premiums are proportional to insurance risks, and that the fund itself is restored to long-term health and maintained at levels that will withstand future periods of financial distress. The following sections highlight important developments in the financial condition of the DIF and changes to the management of the fund, assessment system, and coverage limits. Restoring the Deposit Insurance Fund. Since year-end 2007, the failure of 377 FDIC-insured institutions has imposed total estimated losses of $84 billion on the DIF. In the recent crisis, as in the banking crisis of two decades ago, the sharp increase in bank failures caused the fund balance (the fund's net worth) to become negative. In the recent crisis, the DIF balance turned negative in the third quarter of 2009 and hit a low of negative $20.9 billion in the following quarter. As the DIF balance declined, the FDIC adopted a statutorily required Restoration Plan and increased assessments to handle the high volume of failures and begin replenishing the fund. The FDIC increased assessment rates at the beginning of 2009, which raised regular assessment revenue from $3 billion in 2008 to over $12 billion in 2009 and almost $14 billion in 2010. In June 2009, the FDIC imposed a special assessment that brought in an additional $5.5 billion from the banking industry. Furthermore, in December 2009, to increase the FDIC's liquidity, the FDIC required that the industry prepay almost $46 billion in assessments, representing over three years of estimated assessments. While the FDIC had to impose these measures at a very challenging time for banks, they enabled the agency to avoid borrowing from the U.S. Treasury. The measures also reaffirmed the longstanding commitment of the banking industry to fund the deposit insurance system. Since the FDIC imposed these measures, the DIF balance has steadily improved. It increased throughout 2010 and stood at negative $1.0 billion as of March 31 of this year. We expect to report that the DIF balance is once again positive when we release second quarter results next month. Under the Restoration Plan for the DIF, the FDIC has put in place assessment rates necessary to achieve a reserve ratio (the ratio of the fund balance to estimated insured deposits) of 1.35 percent by September 30, 2020, as the Dodd-Frank Act requires. Expanding the Assessment Base. The FDIC has also implemented the Dodd-Frank Act requirement to redefine the base used for deposit insurance assessments as average consolidated total assets minus average tangible equity. The FDIC does not expect this change to materially affect the overall amount of assessment revenue that otherwise would have been collected. However, as Congress intended, the change in the assessment base will generally shift some of the overall assessment burden from community banks to the largest institutions, which rely less on domestic deposits for their funding than do smaller institutions. The result will be a sharing of the assessment burden that better reflects each group's share of industry assets. The FDIC estimates that aggregate premiums paid by institutions with less than $10 billion in assets will decline by approximately 30 percent, primarily due to the assessment base change. Raising Deposit Insurance Coverage Limits. In retrospect, it appears clear that expanding the coverage of deposit accounts during the crisis helped maintain public confidence in the banking system and particularly helped community banks maintain deposits. In the aftermath of the crisis, the Dodd-Frank Act made permanent the increase in the coverage limit to $250,000. It also provided deposit insurance coverage on the entire balance of non-interest bearing transaction accounts at all insured depository institutions until December 31, 2012. This provision extends, with some modifications, an FDIC program that provided stability to banks and their business customers during the crisis. The two-year extension of full coverage for non-interest bearing transaction accounts will especially help smaller banks retain accounts commonly used for payroll and other business transaction purposes and maintain the ability to make loans within their communities. Long-term Changes to DIF Management. The Dodd-Frank Act provided the FDIC with substantial new flexibility in setting reserve ratio targets and paying dividends. The FDIC has used its new authority to adopt a long-term fund management plan that should maintain a positive DIF balance even during a banking crisis while preserving steady and predictable assessment rates throughout economic and credit cycles. FDIC analysis of the past two banking crises has shown that the DIF reserve ratio must be 2 percent or higher in advance of a banking crisis to avoid high deposit insurance assessment rates when banking institutions are strained and least able to pay. Consequently, the FDIC recently established a 2 percent reserve ratio target (also known as the Designated Reserve Ratio, or DRR) as a critical component of its long-term fund management strategy. Promoting Stability by Improving Our Capacity to Address SIFI Failures A key feature of the Dodd-Frank Act is a series of new authorities that together provide the basis for a new SIFI resolution framework that will greatly enhance the ability of regulators to address the problems of large, complex financial institutions in any future crisis. Orderly Liquidation Authority. Title II of the Dodd-Frank Act vests the FDIC with orderly liquidation authority that is similar in many respects to the authorities it already has for insured depository institutions. If the FDIC is appointed as receiver for a covered financial company, it is required to carry out an orderly liquidation of the company in a manner than ensures that creditors and shareholders appropriately bear the losses of the financial company while maximizing the value of the company's assets, minimizing losses, mitigating risk, and minimizing moral hazard. Under this authority, common and preferred stockholders, debt holders and other unsecured creditors will know that they will bear the losses of any institution placed into receivership, and management will know that it could be replaced. In addition, management that is substantially responsible for the failure of a covered financial company will be subject to the claw-back of compensation earned during the two previous years. Critical to the exercise of this authority is a clear and transparent process that is efficient and fair. With this in mind, the FDIC commenced the process of proposing rules implementing the Orderly Liquidation Authority immediately upon the passage of the Dodd-Frank Act. A Proposed Rule addressing a few critical elements of the Orderly Liquidation Authority was published last October. In January 2011, following consideration of comments, an Interim Final Rule was promulgated which implemented the initial Proposed Rule with appropriate changes, while continuing to solicit additional comment and feedback. That initial rulemaking addressed the treatment of similarly situated creditors, protection for employees of covered financial companies that continue to work for the company following failure, and protection for policyholders of insurance companies under the orderly liquidation process, among other things. A second Proposed Rule addressing the implementation authority more broadly was published with request for comment last March. This Proposed Rule addressed the important topics of the recoupment of compensation of senior executives and directors who are substantially responsible for the failure of a systemically important financial institution, as well as the priority of claims and the treatment of secured and unsecured creditors. We considered all of the comments to the Interim Final Rule and the second Proposed Rule and consulted with our fellow members of the Financial Stability Oversight Council (FSOC). With appropriate changes to address those comments and concerns, a Final Rule was approved by the Board of Directors on July 6, 2011, covering all of the aspects of the Orderly Liquidation Authority addressed in these earlier rules. This Final Rule provides a framework to resolve any U.S. financial institution, no matter its size, using many of the same powers that the FDIC has long used to manage failed-bank receiverships. While the adoption of the Final Rule Implementing Certain Orderly Liquidation Authority Provisions under Title II completes a large portion of the rulemaking required with respect to the exercise of Orderly Liquidation Authority under the Dodd-Frank Act, there is still more to do. As required by the Act, we are working with the Securities and Exchange Commission on a joint regulation implementing the Title II authority to resolve covered broker-dealers. The agencies are in agreement on the approach to the exercise of this authority, and have been meeting to finalize language of a Proposed Rule that we expect to be published in the Federal Register for public comment in the near future. Similarly, work is ongoing on a joint rule with all of the primary financial regulators regarding recordkeeping requirements for derivatives. The FDIC's experience in resolving failed financial institutions is helpful in addressing this issue, as we have a rule in place regarding recordkeeping of these qualified financial contracts with respect to insured depository institutions. In addition, work is ongoing on other rulemakings required by Title II of the Act, including a rule governing eligibility of prospective purchasers of assets of failed financial institutions, and finalization of a Proposed Rule issued in consultation with the Department of the Treasury regarding certain key definitions for determining which organizations are financial institutions within the meaning of the Dodd-Frank Act. Work also is underway to provide additional guidance to the industry in response to questions and comments received on areas such as the creation, operation and termination of bridge financial companies, and the implementation of certain minimum recovery requirements established under the Act. Resolution Plans. The Dodd-Frank Act also requires the FDIC and the Federal Reserve Board of Governors (FRB) jointly to issue final regulations within 18 months of enactment to implement new resolution planning and credit exposure reporting requirements. These rules will apply to bank holding companies with total assets of $50 billion or more and nonbank financial companies designated by the FSOC for enhanced supervision by the FRB. A Notice of Proposed Rulemaking for such a joint rule on resolution plans was published in April, and the comment period closed last month. Under the Proposed Rule, covered companies would be required to submit a resolution plan within a specified period after the final regulation becomes effective. The Proposed Rule provides that each covered company develop a plan for its rapid and orderly resolution under the Bankruptcy Code in the event of material financial distress or failure. Each resolution plan is required to contain an executive summary, a strategic analysis of the plan's components, a description of the covered company's corporate governance structure for resolution planning, information regarding the covered company's overall organization structure and related information, information regarding the covered company's management information systems, a description of interconnections and interdependencies among the covered company and its material entities, and supervisory and regulatory information. Following submission of a plan, the FDIC and FRB will review the plan to determine if it is credible and will facilitate an orderly resolution of the covered company under the Bankruptcy Code. If a resolution plan does not meet the statutory standards, after an opportunity to remedy its deficiencies, the agencies may jointly determine to impose more stringent regulatory requirements on the covered company. Further, if, after two years following the imposition of the more stringent standards, the resolution plan still does not meet the statutory standards, the FDIC and the FRB may, in consultation with the appropriate FSOC member, direct a company to divest certain assets or operations. In connection with this rulemaking, the agencies are working to develop a deliberative process for reviewing resolution plans to determine whether a plan is both credible and would facilitate an orderly resolution of the covered company under the Bankruptcy Code. Careful consideration is being given to the need to keep proprietary information contained in the resolution plans confidential to the extent permitted by law to ensure that financial companies provide full and accurate disclosures. These important issues will be addressed in the Final Rule the agencies expect to adopt in the near future. SIFI Designation. The SIFI resolutions framework authorized under the Dodd-Frank Act will automatically apply to bank holding companies with assets of $50 billion or more, as well as non-bank financial companies that are deemed by the FSOC to pose a risk to financial stability. The FDIC is currently working with its FSOC counterparts to jointly develop criteria for designating SIFIs under this authority. The FSOC agencies issued an Advanced Notice of Proposed Rulemaking (ANPR) last October and a Notice of Proposed Rulemaking (NPR) on January 26, 2011 describing the processes and procedures that will inform the FSOC's designation of nonbank financial companies under the Dodd-Frank Act. In response to the FSOC's ANPR and NPR, several commenters raised concerns about the lack of detail and clarity surrounding the designation process. The industry does need clarity about which firms will be expected to provide the FSOC with this additional information. To achieve this, the FSOC will seek to establish simple and transparent metrics, such as firm size, similar to the approach used for bank holding companies under the Dodd-Frank Act, and incorporate other relevant indicators. The goal will be to establish a clear and transparent process for SIFI designation. The FDIC Office of Complex Financial Institutions (OCFI). An important element of the FDIC's implementation effort has been the creation of a new Office of Complex Financial Institutions (OCFI) to coordinate the execution of our new SIFI resolution authorities under the Dodd-Frank Act. OCFI is already actively working with the FRB and the other agencies of FSOC to develop the capabilities needed to resolve SIFIs, if necessary, in a manner that mitigates systemic risk without reliance on taxpayer support. OCFI is structured into three groups: monitoring, resolution planning and international outreach. Staff in the monitoring group will have responsibility to evaluate risks across the financial system and at individual entities. Unlike a prudential supervisor, the monitoring group will specifically focus on the financial, operational and execution risks that could be posed in a resolution. This group is also charged with collecting information for resolution planning and exercising the FDIC's backup authority. The resolutions group will review the resolution plans that systemically important entities develop to orderly unwind through the U.S. bankruptcy process. Additionally, staff in the resolution group will develop resolution plans for these entities using the FDIC's authority under Title II of the Dodd-Frank Act. Finally, as the name implies, the international outreach and coordination group will coordinate our efforts with those in other jurisdictions charged with similar responsibilities. A critical component of successfully addressing a distressed SIFI is having sufficient information and clear strategic options at the time of failure to enable decision makers to reasonably foresee the outcomes of alternative scenarios. One of the FDIC's biggest challenges during the fall of 2008 was not having the information necessary to make informed decisions. Robust pre-planning – which entails understanding how and where these enterprises operate, as well as the structure of their business lines, counterparties, business risks, their role in the financial system, and their place in financial intermediation – is essential in giving regulators viable resolution options other than a bailout in the midst of a crisis. OCFI's monitoring activity of these systemic enterprises will be the principal mechanism for validating the entities' resolution plans and informing the FDIC on the development of Title II resolution plans. OCFI's implementation of the Dodd-Frank Act SIFI resolution authorities builds on years of FDIC experience in successfully resolving failed depository institutions. While the basic framework and principles of successfull resolution apply to both small and large institutions, the resolution of large, complex and highly-interconnected institutions poses special challenges. The strategy for resolving a systemically important entity must be custom tailored to the characteristics and systemic nature of the entity, the circumstances of failure, and the overall economic environment. Business models and organizational structures change over time, as do financial and market conditions. That is why the FDIC has directed resources to approach resolution planning as an ongoing regulatory process, not as a one-time exercise. FDIC Systemic Resolution Advisory Committee. To ensure that we have the benefit of the best thinking on complex resolution issues, the FDIC has chartered a Systemic Resolutions Advistory Commitee to provide advice and recommendations on a broad range of issues relevant to the failure and resolution of SIFIs. The Committee is composed of leading academics, prominent former policymakers, and experts from the financial industry itself. Although it has no decision-making role, Committee members will be asked to opine on topics related to the nature of systemic risk, the effects of the choice of resolution strategy on stakeholders and customers, international coordination of resolution activities, and how the market understands the new SIFI resolution authorities and how they would be applied in a future crisis. Promoting Financial Stability by Strengthening Bank Capital No banking system can maintain stability over the ups and downs of the business cycle without a strong capital base. Capital allows an institution to absorb large unexpected losses while maintaining the confidence of its counterparties and continuing to lend. In other words, strong capital minimizes the likelihood that large institutions will become troubled and need to be resolved in some way by the federal government during an economic downturn. Moreover, in situations where an institution does need to be resolved, a strong capital base provides regulators time to structure that resolution in an orderly manner without federal support and solicit bids from potential acquirers. In this sense, stronger bank capital requirements complement the Dodd-Frank Act resolution tools designed to prevent future bailouts of financial companies. Insufficient capital, in contrast, heightens a banking system's exposure to periodic crises. The knowledge that capital cushions are thin compared to the magnitude of risks that abruptly and unexpectedly loom large can contribute to a panic atmosphere and feed a crisis. Thin capital cushions also contribute to the kind of abrupt deleveraging we saw in the recent crisis and its aftermath. Since the crisis, U.S. banks have contracted lending by over $750 billion and reduced their loan commitments by more than $2.7 trillion. For all these reasons, the FDIC supports recent initiatives to strengthen bank capital requirements. While beyond the scope of this testimony, a recent initiative includes Basel III - an important initiative to strengthen the quality of capital and increase the level of minimum capital requirements. The FDIC also supports important provisions of the Dodd-Frank Act that that deal with bank capital. We believe that these provisions, contained in Section 171 and Section 165 of the Act, complement Basel III and will help promote a safe-and-sound banking system in the U.S. Section 171 of the Dodd-Frank Act states among other things that the capital requirements for the largest banks and bank holding companies must not be less than the capital requirements that are generally applicable to insured banks. The FDIC, the FRB and Comptroller of the Currency (OCC) recently finalized a rule implementing this aspect of Section 171. Consistent with Section 171, the Final Rule states that the capital requirements computed under the agencies' general risk-based capital rules will be a floor for the capital requirements of large banks that use the Advanced Approaches of Basel II (banking organizations with assets exceeding $250 billion are required to use the Advanced Approaches). In different words, the capital requirement for a large bank using the Advanced Approaches may not be less in proportionate terms than the capital requirement for a community bank with the same exposures. An important part of Section 171 is to ensure that regulatory capital for Bank Holding Companies (BHCs) is defined in a way that is at least as stringent as regulatory capital for insured banks. This expectation is consistent with the longstanding principle that BHCs should serve as a source of strength for their subsidiary banks. But during the crisis, we observed that BHCs were often less strongly capitalized on a consolidated basis than their subsidiary banks. This was largely a result of the widespread use of Trust Preferred Securities (TruPS), a form of subordinated debt, that are impermissible as Tier 1 capital for insured banks but have been permitted to meet a portion of a BHC's Tier 1 capital requirements since 1996. As debt instruments, TruPS cannot absorb losses while an organization operates as a going concern. This is an important reason why BHCs with heavier reliance on TruPS failed more often than other insured institutions during the crisis. Under Section 171, TruPS are phased-out of Tier 1 capital for BHCs with assets of at least $15 billion as of year-end 2009, with the phase-out occurring over a period of three years starting January 1, 2013. Important exceptions and grandfathering provisions exist for smaller BHCs.1 The FDIC considers Section 171 as an important safeguard for the capital adequacy of the U.S. banking system. Without Section 171, large U.S. banks could use their internal models to reduce their risk-based capital requirements, potentially well below the levels required for community banks, to levels that are inconsistent with safe and sound operations. Another important capital provision is contained in Section 165 of the Dodd-Frank Act, which requires the FRB to establish heightened capital standards for BHCs with assets of at least $50 billion and designated nonbank financial companies. These requirements can be viewed as the U.S. counterparts to the so-called SIFI capital surcharges that the Basel Committee on Banking Supervision recently published for comment. We believe a requirement for additional loss absorbency at the largest institutions is appropriate given the potential impact of a failure of one of these institutions on the financial system and the broader economy. Changes to the Regulatory Structure Under the Dodd-Frank Act The Dodd-Frank Act also mandated important changes to the structure of the financial regulatory agencies, including the sunset of the Office of Thrift Supervision (OTS) and the creation of the Consumer Financial Protection Bureau (CFPB). These changes will have important implications for the FDIC's supervisory, policy and data collection functions. Changes Related to OTS Sunset. The winding down of the OTS under the Dodd-Frank Act will result in the transfer of supervisory responsibility for 59 state-chartered savings associations to the FDIC.2 These institutions are located in 18 states and territories, with almost half of the total charters located in Ohio. All of the state-chartered institutions transferring to the FDIC are small, with the largest having assets of just over $2 billion and only 3 of the 59 having total assets exceeding $1 billion. Given the small number of charters transferring to the FDIC and their relative lack of problems and complexity, the FDIC will absorb all state-chartered savings associations into our existing supervisory program. We have assigned responsibility for examinations and other supervisory activities for each state-chartered savings association to the appropriate FDIC Regional Office. FDIC and OTS supervisory personnel began coordinating early in 2011 to ensure that that there will be no gaps in supervision and that the supervisory approach for these institutions will continue to be rigorous, consistent, and balanced both during and after the transition. We also recognize the importance of communicating regularly with the industry throughout this process. Two FDIC outreach events were held in Ohio to assist institutions in understanding the transition, and institutions in other states were contacted directly to ensure that their questions about the transition were answered. The FDIC is fully integrating OTS staff into its current organizational structure. In addition to absorbing the supervisory responsibility for state-chartered thrifts, the FDIC will transfer approximately 95 employees from the OTS, including commissioned examiners as well as other staff. The FDIC plans to open one additional local office in southern Ohio to manage the concentration of additional examination work in that location. Since the FDIC has historically recognized and accepted professional examination credentials from other federal banking agencies, including the OTS, it will treat as commissioned FDIC examiners all OTS examiners who transfer to the FDIC with OTS accreditation. The FDIC will address any individual training gaps that emerge after the transfer date through individual training and development plans. The FDIC has also worked closely with the OCC and the OTS to ensure that all transferred OTS employees are treated in full accordance with the requirements of sections 322(e) and 322(k)(2) of the Dodd-Frank Act with respect to their status, tenure, pay, and benefits. The agencies have determined, subject to public notice and comment and OMB approval, that it would be best to phase out the separate collection of Thrift Financial Report (TFR) data and to merge that data collection process into the Call Report process used by other FDIC-insured depository institutions beginning with the March 2012 reporting period. The FDIC will assume responsibility for TFR reporting on an interim basis beginning with the second quarter 2011 TFR. OTS staff previously responsible for collecting and analyzing TFR data will transfer to the FDIC to support the transition of thrifts to the Call Report and the ongoing reporting process for these institutions. In addition, OTS personnel who are assigned to the FDIC will continue to process all of the existing Savings and Loan Holding Company (SLHC) reports that were previously required to be filed by the OTS until the SLHCs can be transitioned to holding company reports required by the FRB. Changes Related to the Establishment of the CFPB. While the CFPB will be responsible for writing consumer protection rules for lenders of all types and all sizes, the current primary federal regulators will retain their enforcement responsibilities for FDIC-insured banks and thrifts with assets of less than $10 billion. This means that the FDIC will continue to examine about 4,500 state-chartered, non-member banks for compliance with consumer laws and regulations. The FDIC has held several meetings with CFPB staff to discuss transition issues, including data sharing, hiring, and consumer complaint handling, and recently supplied the CFPB with information they requested on institutions that will be transferred to its oversight, including examination reports and consumer complaint information. We are working with the CFPB on a joint Memorandum of Understanding (MOU) to provide for the transfer to the CFPB of consumer complaints involving large financial institutions. We are working hard to close out as many open examinations and enforcement cases as possible prior to the July 21 handover. But as part of our ongoing discussions, the CFPB has asked the FDIC to continue handling certain consumer complaints after the July 21 handover to provide for the orderly transition of complaint handling for large banks. We anticipate the possibility of ongoing work related to the transfer of consumer complaints between the FDIC and CFPB including, among other things, procedures for sharing information about complaints handled by each agency. The FDIC has also issued a solicitation of interest for experienced staff to apply for employment with the CFPB. At this point, 40 FDIC employees have accepted CFPB offers to transfer. Conclusion Today's testimony highlights the FDIC's progress in implementing financial reforms authorized by the Dodd-Frank Act. The Act authorized important reforms to the FDIC's deposit insurance program that will ensure that coverage is sufficient to preserve public confidence in a crisis, that premiums are proportional to insurance risks, and that the fund itself is restored to long-term health and maintained at levels that will withstand future periods of financial distress. These deposit insurance reforms are critical to both ensuring financial stability and preserving competitive balance between the largest institutions and smaller community institutions. The Act contains a number of provisions that, together, form the basis for a new SIFI resolution framework that substantially improves the ability of regulators to respond to severe financial distress on the part of a large, complex financial institution. These reforms are not a cure-all, but are designed to work in concert with the other Dodd-Frank Act reforms, including those that strengthen capital requirements and the DIF, to promote competitive balance and make financial crises less frequent and less costly in the future. Since the Dodd-Frank Act became law one year ago, the FDIC has proceeded – on our own authority and in concert with our regulatory counterparts – to implement its provisions. We have made much progress in one year, but still have considerable work ahead of us. Throughout this process, we have sought input from the industry and the public, and we continue to report back to Congress on our progress. We believe that successful implementation of these provisions will represent a significant step forward in providing a foundation for a financial system that is more stable and less susceptible to crises in the future, and better prepared to respond to crises if and when they develop. Thank you. I would be glad to take your questions."