[StBernard] The Wall Street Reform Bill: Conference

[Westley Annis]

The Wall Street Reform Bill: Conference Update

 

Washington -Last week was a successful week for the House and Senate
conferees for the bill to bring accountability to Wall Street.  The bill
creates a new consumer financial protection watchdog, ends too big to fail
bailouts, sets up an early warning system to predict and prevent the next
crisis, and brings transparency and accountability to exotic instruments
such as derivatives.

 

The following is a summary of the many provisions agreed to during the
House-Senate conference last week. 

 

A list of House and Senate offers and counter offers can be found by
clicking here
<http://banking.senate.gov/public/index.cfm?FuseAction=Issues.View&Issue_id=
380e9256-0461-ff42-937a-cf820569c52e> , but please note that there are still
open items in each title, and nothing will be final until the conference
report is signed by the conferees at the end of this week.  

 

The House-Senate conference will continue its negotiations on the Wall
Street Reform and Consumer Protection Act tomorrow at noon in room SD-106,
Dirksen Senate Office Building.

 

Title III

AGREED TO - THRIFT PROVISIONS

*         Preserves the Thrift Charter 

*         Abolishes the Office of Thrift Supervision

*         Transfers the Authority of the OTS mainly to the OCC

*         Establishes a Deputy Comptroller for Thrifts at the OCC

*         Clarifies Branching Authority of thrifts that convert to banks 

*         House Employee Protections as provided for in the House passed
bill. 

 

AGREED TO - New Offices of Minority and Women

 

AGREED TO - Deposit Insurance Reforms: Permanent increase in deposit
insurance for banks, thrifts and credit unions to $250,000, retroactive to
January 1, 2008. 

 

 

Title IV: - RAISING STANDARDS AND REGULATING HEDGE FUNDS 

AGREED TO

*        Fills Regulatory Gaps: Ends the "shadow" financial system in which
hedge funds and private equity funds operate by requiring those that manage
over $150 million in assets provide regulators with critical information.

*        Register with the SEC: Requires hedge funds and private equity
advisors to register with the SEC as investment advisers and provide
information about their trades and portfolios necessary to assess systemic
risk.  This data will be shared with the systemic risk regulator and the SEC
will report to Congress annually on how it uses this data to protect
investors and market integrity.  

*        Greater State Supervision: Raises the assets threshold for federal
regulation of many investment advisers from $25 million to $100 million, a
move expected to significantly increase the number of advisors under state
supervision.  States have proven to be strong regulators in this area and
subjecting more entities to state supervision will allow the SEC to focus
its resources on newly registered hedge funds.

 

 

Title V: INSURANCE 

AGREED TO

*        Federal Insurance Office:  Creates a new office within the Treasury
Department to monitor the insurance industry and requires a study on ways to
modernize insurance regulation and provide Congress with recommendations.  

*        Streamlines regulation of surplus lines insurance and reinsurance
through state-based reforms.

*        Regulatory Considerations by the Federal Insurance Office expanded
to include access to affordable insurance products by minorities, low- and
moderate-income persons and underserved communities.

 

 

Title IX

AGREED TO - NEW REQUIREMENTS AND OVERSIGHT OF CREDIT RATING AGENCIES 

*        Ends Shopping for Ratings: The SEC shall create a new mechanism to
prevent issuers of asset backed-securities from picking the agency they
think will give the highest rating, after conducting a study and after
submission of the report to Congress.

*        New Office, New Focus at SEC: Creates an Office of Credit Ratings
at the SEC with its own compliance staff and the authority to fine agencies.
The SEC is required to examine Nationally Recognized Statistical Ratings
Organizations at least once a year and make key findings public.  

*        Disclosure: Requires Nationally Recognized Statistical Ratings
Organizations to disclose their methodologies, their use of third parties
for due diligence efforts, and their ratings track record.

*        Independent Information: Requires agencies to consider information
in their ratings that comes to their attention from a source other than the
organizations being rated if they find it credible.

*        Conflicts of Interest: Prohibits compliance officers from working
on ratings, methodologies, or sales.

*        Liability: Investors could bring private rights of action against
ratings agencies for a knowing or reckless failure to conduct a reasonable
investigation of the facts or to obtain analysis from an independent source.


*        Right to Deregister: Gives the SEC the authority to deregister an
agency for providing bad ratings over time.  

*        Education: Requires ratings analysts to pass qualifying exams and
have continuing education.

*        Eliminates Many Statutory and Regulatory Requirements to Use NRSRO
Ratings: Reduces over-reliance on ratings and encourages investors to
conduct their own analysis. 

*        Independent Boards: Requires at least half the members of NRSRO
boards to be independent, with no financial stake in credit ratings. 

 

AGREED TO - EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE 

*        Independent Compensation Committees: Standards for listing on an
exchange will require that compensation committees include only independent
directors and have authority to hire compensation consultants in order to
strengthen their independence from the executives they are rewarding or
punishing.

*        No Compensation for Lies: Requires that public companies set
policies to take back executive compensation if it was based on inaccurate
financial statements that don't comply with accounting standards.

*        SEC Review: Directs the SEC to clarify disclosures relating to
compensation, including requiring companies to provide charts that compare
their executive compensation with stock performance over a five-year period.

 

AGREED TO - SEC AND IMPROVING INVESTOR PROTECTIONS 

*        Encouraging Whistleblowers: Creates a program within the SEC to
encourage people to report securities violations, creating rewards of up to
30% of funds recovered for information provided.

*        SEC Management Reform: Mandates a comprehensive outside consultant
study of the SEC, an annual assessment of the SEC's internal supervisory
controls and GAO review of SEC management.

*        New Advocates for Investors:  Creates the Investment Advisory
Committee, a committee of investors to advise the SEC on its regulatory
priorities and practices; the Office of Investor Advocate in the SEC, to
identify areas where investors have significant problems dealing with the
SEC and provide them assistance; and an ombudsman to handle investor
complaints.

 

AGREED TO - BETTER OVERSIGHT OF MUNICIPAL SECURITY ISSUER ADVISORS 

*        Registers Municipal Advisors: Requires registration for municipal
financial advisers, swap advisers, and investment brokers - unregulated
intermediaries who play key roles in the municipal bond market.  Subjects
financial advisors, swap advisors, and investment brokers to rules enforced
by the SEC or a designee.

*        Puts Investors First on the MSRB Board: Gives investor and public
representatives a majority on the MSRB to better protect investors in the
municipal securities market where there has been less transparency than in
corporate debt markets.

*        Imposes a fiduciary duty on advisors to municipal securities
issuers.

 

 

Title XI: AGREED TO - STRENGTHENING THE FEDERAL RESERVE 

*        Federal Reserve Emergency Lending: Limits the Federal Reserve's
13(3) emergency lending authority by prohibiting emergency lending to an
individual entity.  Secretary of the Treasury must approve any lending
program, programs must be broad based, and loans cannot be made to insolvent
firms.  Collateral must be sufficient to protect taxpayers from losses.

*        Transparency - GAO Audit: GAO will conduct a one-time audit of all
Federal Reserve 13(3) emergency lending that took place during the financial
crisis.  Details on all lending will be published on the Federal Reserve
website by December 1, 2010.  In the future GAO will have authority to audit
13(3) and discount window lending, and open market transactions. 

*        Transparency - Disclosure: Requires the Federal Reserve to disclose
counterparties and information about amounts, terms and conditions of 13(3)
and discount window lending, and open market transactions, with specified
time delays.

*        Oversight Accountability: Creates a Vice Chairman for Supervision,
a member of the Board of Governors of the Federal Reserve designated by the
President, who will develop policy recommendations regarding supervision and
regulation for the Board, and will report to Congress semi-annually on Board
supervision and regulation efforts.

*        Federal Reserve Bank Governance: GAO will conduct a study of the
current system for appointing Federal Reserve Bank directors, to examine
whether the current system effectively represents the public, and whether
there are actual or potential conflicts of interest.  It will also examine
the establishment and operation of emergency lending facilities during the
crisis and the Federal Reserve banks involved therein.  The GAO will
identify measures that would improve reserve bank governance.

*        Election of Federal Reserve Bank Presidents: Presidents of the
Federal Reserve Banks will be elected by class B directors - elected by
district member banks to represent the public - and class C directors -
appointed by the Board of Governors to represent the public.  Class A
directors - elected by member banks to represent member banks - will no
longer vote for presidents of the Federal Reserve Banks.

*        Limits on Debt Guarantees: To prevent bank runs, the FDIC can
guarantee debt of solvent insured banks, but only after meeting serious
requirements: 2/3 majority of the Board and the FDIC board determine there
is a threat to financial stability; the Treasury Secretary approves terms
and conditions and sets a cap on overall guarantee amounts; the President
activates an expedited process for Congressional approval.

 

 

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