[StBernard] Committee Completes Work on New Rules to Govern America's Financial System

[Westley Annis]

Committee Completes Work on New Rules to Govern America's Financial System

House will vote on reform package next week

 

Washington, DC - Yesterday, the House Financial Services Committee completed
its work on a comprehensive set of reforms that responds to the recent
economic crisis by modernizing America's financial regulations. The Wall
Street Reform and Consumer Protection Act
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/F
inancialRegulatoryReform/Bills_as_reported/hr4173.pdf>  (H.R. 4173), which
will be considered on the House floor next week, incorporates nine major
pieces of legislation approved by the Committee to address the myriad causes
- from predatory lending to unregulated derivatives - that led to last
year's meltdown.

 

The Wall Street Reform and Consumer Protection Act
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/F
inancialRegulatoryReform/Bills_as_reported/hr4173.pdf>  includes the
following provisions:

 

*      Consumer Protections: Creates the Consumer Financial Protection
Agency (CFPA), a new, independent federal agency solely devoted to
protecting Americans from unfair and abusive financial products and
services. 

 

*      Financial Stability Council: Creates an inter-agency oversight
council that will identify and regulate financial firms that are so large,
interconnected, or risky that their collapse would put the entire financial
system at risk. These systemically risky firms will be subject to heightened
oversight, standards, and regulation. 

 

*      Dissolution Authority and Ending "Too Big to Fail": Establishes an
orderly process for dismantling large, failing financial institutions like
AIG or Lehman Brothers in a way that ends bailouts, protects taxpayers, and
prevents contagion to the rest of the financial system. 

*      Executive Compensation: Gives shareholders a "say on pay" - an
advisory vote on pay practices including executive compensation and golden
parachutes. It also enables regulators to ban inappropriate or imprudently
risky compensation practices, and it requires financial firms to disclose
any compensation structures that include incentive-based elements.

 

*      Investor Protections: Strengthens the SEC's powers so that it can
better protect investors and regulate the nation's securities markets.  It
responds to the failures to detect the Madoff and Stanford Financial frauds
by ordering a study of the entire securities industry that will identify
needed reforms and force the SEC and other entities to further improve
investor protection. 

 

*      Regulation of Derivatives:  Regulates, for the first time ever, the
over-the-counter (OTC) derivatives marketplace. Under the bill, all
standardized swap transactions between dealers and "major swap participants"
would have to be cleared and traded on an exchange or electronic platform.
The bill defines a major swap participant as anyone that maintains a
substantial net position in swaps, exclusive of hedging for commercial risk,
or whose positions create such significant exposure to others that it
requires monitoring. 

 

*      Mortgage Reform and Anti-Predatory Lending: Would incorporate the
tough mortgage reform and anti-predatory lending bill the House passed
earlier this year. The legislation outlaws many of the egregious industry
practices that marked the subprime lending boom, and it would ensure that
mortgage lenders make loans that benefit the consumer.  It would establish a
simple standard for all home loans: institutions must ensure that borrowers
can repay the loans they are sold. 

 

*      Reform of Credit Rating Agencies: Addresses the role that credit
rating agencies played in the economic crisis, and takes strong steps to
reduce conflicts of interest, reduce market reliance on credit rating
agencies, and impose a liability standard on the agencies.  

 

*      Hedge Fund, Private Equity and Private Pools of Capital Registration:
Fills a regulatory hole that allows hedge funds and their advisors to escape
any and all regulation.  This bill requires almost all advisers to private
pools of capital to register with the SEC, and they will be subject to
systemic risk regulation by the Financial Stability regulator.

 

*      Office of Insurance: Creates a Federal Insurance Office that will
monitor all aspects of the insurance industry, including identifying issues
or gaps in the regulation of insurers that could contribute to a systemic
crisis and undermine the entire financial system. 

 

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