Wednesday, November 11, 2009

The Senate and Dodd release their own version of Financial Reform

The text of the draft legislation is here. I haven't read it yet, but can summarize some of the provisions receiving the most (negative?) attention.

Single Banking Regulator, Financial Institutions Regulatory Administration. Created from combining the Office of the Comptroller of the Currency and the Office of Thrift Supervision. All banking regulation is pulled under this new group; hat-tip to controversy: at the cost of the FDIC and the Fed. (Though with one hand he taketh, with the other hand he giveth: FDIC gets to take-over and break-up failing financial companies). No state agencies would any longer have banking regulatory authority and thrifts would in fact have to become banks.

Fed is Reorganized. Specifically, Fed ability to make emergency loans to companies is curtailed, and bank and consumer protection supervision is taken away and relocated elsewhere in the federal hierarchy. Further, where private bankers currently choose six of the nine directors on each of the twelve regional bank boards, Dodd's draft legislation proposes to give this power to the Federal Reserve Board in D.C. Dodd would also give the President the power to nominate Chairmen for the regional bank boards, subject to Senate confirmation.

Council of Regulators. These folks would monitor (and presumably takes steps to remedy?) systemic risks.

Consumer Financial Protection Agency. At last - something Everyone can agree on? Will cover consumer products including credit cards and mortgages.

"Too big to fail institutions." Once identified, regulators could require a company to shed divisions and components to reduce size.

A federal insurance regulator is created; derivatives go to an exchange; rating agency liability is increased; parties selling ABS would be required to retain partial ownership; and shareholder voice is given a new, higher platform (as regards governance issues broadly, and executive compensation specifically).

It's early in the game, and House and Administration reform look very different; is difficult to say what of any of this will remain by next year at this time.

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