Financial Regulatory Forum

Financial reforms gain traction in U.S. Congress

By Reuters Staff
October 14, 2009

Committee Chairman Edolphus Towns (D-NY) (C), ranking member Rep. Darrell Issa (R-CA) (L) and Rep. Dennis Kucinich (D-OH) (R) talk to reporters after testimony by U.S. Federal Reserve Chairman Ben Bernanke about his role in Bank of America's acquisition of Merrill Lynch, at a hearing of the House Oversight and Government Reform Committee on Capitol Hill in Washington, June 25, 2009.    REUTERS/Jonathan Ernst    (UNITED STATES POLITICS BUSINESS) By Kevin Drawbaugh
WASHINGTON, Oct 14 (Reuters) – A senior U.S. lawmaker lashed out anew over the rich pay packages awarded to executives of bailed-out banks on Wednesday, as Congress took steps to move ahead on financial regulatory reform.

More than a year after the worst financial crisis in decades, the House Financial Services Committee is expected to vote this week on new rules to police the $450 trillion over-the-counter derivatives market and on an Obama administration proposal to form a new consumer financial watchdog agency.

Pro-reform Democrats clashed with Republicans allied with bank lobbyists at a Financial Services Committee working session on policing the OTC derivatives market.

The largely unregulated OTC derivatives market, which includes the credit default swaps used to bet on whether a company will default on its bonds, has been blamed in part for amplifying the financial crisis last year.

Congress also will soon probe executive pay at firms that got taxpayer bailouts, such as American International Group and Bank of America , the chairman of the House Oversight and Government Reform Committee said on Wednesday.

“What infuriates people is when bosses at bailed out companies … continue to rake in millions,” the committee chairman, Edolphus Towns, said at a hearing to examine AIG’s bonuses. “It doesn’t seem right that the people who caused this tragedy should be so richly rewarded.”

A year after U.S. taxpayers committed hundreds of billions of dollars to bailing out banks, big banks and securities firms were on track to pay employees $140 billion in total pay and benefits this year, The Wall Street Journal said.

That would be about 20 percent more than last year for employees at 23 top U.S. investment banks, hedge funds, asset managers and stock and commodities exchanges, the newspaper said, citing an analysis of securities filings for the first half of 2009 and revenue estimates through year-end.

The House has approved a bill to impose new curbs on banker pay, but the Senate has not yet taken it up.

President Barack Obama is pushing for quick action on financial reform to respond to public anger about huge bank bailouts and bankers’ pay, and before momentum fades to reform the system in a bid to prevent another crisis in the future.

While the full House of Representatives was expected to vote on a comprehensive bill next month, the Senate has moved more slowly as it has wrestled with healthcare reform.

Treasury Secretary Timothy Geithner, speaking on Tuesday ahead of the working session in the House Financial Services Committee, chaired by Barney Frank, said, “I just want to underscore how important it is, how pleased we are that Chairman Frank is moving forward.”

OTC DERIVATIVES DEBATE
Frank on Wednesday said the latest version of his bill to regulate OTC derivatives would make further concessions to firms ranging from airlines to agribusiness that use derivatives to hedge their operations against the risk of changing prices and interest rates.

A few banks control more than 90 percent of the derivatives market, among them Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley.

But as the committee worked to nail down details of the bill, Democrats and Republicans sparred over the need for further regulation.

Republican Representative Tom Price said the Democrats’ attempt to impose more regulation on OTC derivatives is unnecessary. “The notion that we’re in this boat because we didn’t have enough regulators is simply flawed,” he said.

Democratic Representative Melissa Bean defended the need for regulatory reform: “Lacking and lagging regulation of OTC derivatives was a major factor in last year’s crisis.”

Lawmakers are keen to minimize systemic risk to the U.S. economy from OTC derivatives but avoid imposing unneeded costs on U.S. corporations that are not central to those risks.

The committee also was debating possible further changes to encourage more exchange trading of certain kinds of OTC derivatives — a move that would align its bill more closely with one in the House Agriculture Committee.

Both panels were working on the issue and Frank said there will have to be a meeting between himself, Agriculture Committee Chairman Collin Peterson, regulators and the administration once both committees are done and before any legislation comes before the full House for a vote.

Frank’s committee was also expected to debate and vote on a bill this week to create a Consumer Financial Protection Agency, a new watchdog proposed by Obama to shield consumers from deceptive mortgages and other financial products.

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