FACTBOX – 20 ways US House, Senate financial reforms differ

By Reuters Staff
January 6, 2010

Jan 6 (Reuters) – The U.S. Senate will resume debate this month on financial regulation reform, focusing on proposals that differ in 20 key ways from comprehensive legislation approved last month by the U.S. House of Representatives.

A summary of the differences follows.

* RESOLUTION FUND. House bill creates $200-billion fund to help pay for Federal Deposit Insurance Corp (FDIC) actions to dismantle insolvent, non-bank financial firms.

Fund gets $150 billion from fees paid by firms with more than $50 billion in assets. Fee threshold for hedge funds is $10 billion. Fund can get $50 billion more if needed from Treasury borrowings.

Senate Banking Committee Chairman Christopher Dodd’s bill, main vehicle for reform in Senate, covers FDIC actions with after-the-fact fees on firms with assets topping $10 billion.

* SECURED CREDITOR HAIRCUT. In House bill, secured creditors in FDIC resolution actions may have up to 10 percent of their claims treated as unsecured claims. Dodd bill does not contain this so-called “haircut” provision.

* FDIC EMERGENCY ACTION. House bill allows FDIC to guarantee debts of solvent firms up to $500 billion, with approval of new systemic risk council, Treasury, president.

Dodd bill allows FDIC to guarantee debts of firms in receivership, with approvals from senior officials.

* BANK SUPERVISION. Dodd bill creates single super-cop for banks called Financial Institutions Regulatory Administration (FIRA), strips Federal Reserve, FDIC of bank supervision job.

Like Dodd, House bill closes Office of Thrift Supervision and merges it into Comptroller of the Currency. But House bill stops there, preserves Fed, FDIC roles in supervising banks.

* SYSTEMIC RISK REGULATION. House bill creates inter-agency council to police systemic risk in economy. It relies heavily on Fed as agent for executing policy. Dodd bill sets up new agency to do same job, with much smaller role for Fed.

* HIGHER STANDARDS. Dodd bill imposes incrementally tighter standards on firms with total assets above $10 billion as they present more risk to financial stability. House bill focuses tighter standards on large, “systemically important” firms.

* STRESS TESTS. House bill calls for making firms subjected to stricter standards undergo regular “stress tests,” with summary of results released publicly. Dodd bill does not.

* LEVERAGE LIMITS. House bill imposes 15-to-1 debt-to-equity ratio leverage-limit on financial holding companies subjected to stricter standards under systemic risk reduction regime. Dodd bill does not.

* BANK BREAKUP POWER. Both bills empower regulators to order firms to divest businesses that are too risky. House bill says Treasury must approve any order to divest more than $10 billion in assets, while president must rule on any divestiture above $100 billion. These check-offs absent from Dodd bill.

* PROPRIETARY TRADING BAN. House bill says Fed can ban risky firms from proprietary trading. Dodd bill does not.

* FED MONETARY POLICY. House bill subjects Fed monetary policy for first time to new scrutiny by congressional watchdog. Dodd bill does not.

* FED LENDING POWER. Both bills impose new limits on Fed 13(3) emergency lending authority. House bill puts specific $4 trillion cap on it, imposes check-offs by other authorities. Dodd bill does not.

* END-USER EXEMPTIONS. House bill exempts wide range of end-users of over-the-counter derivatives from mandatory central clearing. Dodd bill has narrower scope for exemptions.

* EXECUTIVE PAY. Both bills give shareholders more “say on pay” by letting them cast annual, non-binding votes on executive pay. House bill goes step further by calling for ban on pay plans that encourage excessive risk-taking. Dodd bill does not propose this ban.

* SHAREHOLDER RIGHTS. House bill makes clear that Securities and Exchange Commission (SEC) may write rules giving shareholders access to corporate proxy statements for nominating candidates for director seats. In further step, Dodd bill orders SEC to write such “proxy access” rules.

* CONSUMER PROTECTION. Both bills propose Consumer Financial Protection Agency (CFPA) to regulate mortgages, credit cards, other products. House bill exempts more businesses from CFPA oversight than Dodd bill. Also, Dodd bill makes state consumer protection laws less vulnerable to preemption by federal authorities.

* HEDGE FUNDS. Both bills require hedge funds to register with SEC. House bill exempts funds worth less than $150 million. Dodd bill sets exemption threshold at $100 million.

Dodd bill exempts private equity funds and venture capital funds from registration. House bill exempts only venture capital funds from full registration and specifically requires registration by offshore funds, while Dodd bill does not.

* SMALL FIRM INTERNAL CONTROL AUDITS. House bill exempts small corporations with market capitalization under $75 million from having to get external reviews of their internal financial controls under post-Enron regulations adopted in 2002. Dodd bill lacks this provision.

* SECURITIZATION. Both bills require lenders that securitize loans for sale on secondary debt market to retain some credit risk. House bill sets this “skin in the game” level at 5 percent, subject to possible adjustments up or down; Dodd bill sets level at 10 percent.

* HOUSING. House bill dedicates $4 billion from 2008′s Troubled Asset Relief Program (TARP) to emergency mortgage aid and neighborhood assistance. Dodd bill does not.

(Reporting by Kevin Drawbaugh; Editing by Andrea Ricci) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

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