Financial Regulatory Forum

Financial regulation scorecard

A House-Senate conference committee must find a middle ground between financial regulation bills passed by the two chambers. The committee’s final report could differ from earlier versions.

Once approved by both chambers, the compromise legislation will go to President Barack Obama to sign it into law. That could happen by July 4, analysts say.

Here’s a look at the status of major points in the House and Senate financial regulation bills. Item Objective House Bill Senate Bill Current Status Volcker Rule Ban risky trading unrelated to customers’ needs at deposit-insured banks whose federal backing enables them to borrow money more cheaply than rivals. Not Present Under the Senate bill, the Volcker rule would be adopted, but regulators would write its details, possibly weakening it. Some form of the rule is expected to be in the final measure. Banks will push to kill it or water it down. Derivatives Institutes federal oversight of these financial instruments by putting most through a clearinghouse and prices most on an open market. Present, but weaker than Senate Senate bill regulates derivatives more harshly than House bill as it includes an amendment from Sen. Blanche Lincoln forcing banks to spin-off most of their swap-trading desks. Wall Street firms that dominate the market are lobbying hard against changing the rules. Higher capital requirements for banks and financial firms Tries to ensure that banks have enough capital to withstand financial shocks and lessen the chance that excessive leverage brings down financial firms. Present but lacking detail. The Senate bill would make bank holding companies adhere to the same capital standards as bank subsidiaries. It would also bar bank holding companies from counting certain kinds of hybrid securities in meeting a key measure of strength. Bank lobbyists will work hard in conference to kill this additional Senate provision. But its author, Senator Susan Collins, was one of only four Republicans to vote for the Senate bill, so she could have an edge. Ending “Too Big to Fail” Tries to ensure that federal bank bailouts funded by taxpayers are a thing of the past. House bill sets up a pre-paid fund of $150 billion funded by banks, with an extra $50 billion able to be borrowed from the U.S. Treasury if needed. Senate bill sets up an “orderly liquidation” process that lets regulators seize large financial firms in distress and wind them down so as to avoid another Lehman Brothers-type event. The Senate version taxes banks after the fact to pay for bank rescues. The House’s prepaid fund idea looks likely to die in committee, with the Senate plan prevailing. Oversight of the Fed Tries to ensure the Fed is not taking on too much risk and tries to make it more transparent. The House bill subjects Fed monetary policy for the first time to new scrutiny by a congressional watchdog. Senate bill calls for a one-time audit of the Fed’s emergency lending during the most recent financial crisis. House and Senate negotiators are expected to back away from measures for the Fed that would expose the central bank’s monetary policy to scrutiny and make one of its top officials a political appointee. Consumer protection Create a government watchdog for consumers to regulate mortgages and credit cards. House bill creates an independent consumer protection bureau but exempts many businesses from oversight. Senate bill puts agency in the Federal Reserve and contains fewer exemptions. Most industry lobbyists and Republicans bitterly oppose any watchdog proposal and will push to block an independent agency, carve out exemptions for a range of businesses and restrict its powers. Credit Rating Agencies Eliminate perceived conflicts of interest in the industry which led to poor-quality assets like subprime mortgage bonds to receive high ratings. House version makes it easier to sue agencies that issue misleading ratings and removes the requirement that government agencies use their ratings. The Senate version created a new government clearinghouse that would assign debt to ratings agencies on a semi-random basis. The committee agreed to kill the Senate provision that would upend the industry’s business model in favor of regulators addressing the conflicts of interests at the largest rating agencies.

Market Structure Moves to Top of Regulatory Agenda

The SEC’s chief said the growing concerns about technological changes in the capital markets are going to drive much of the agency’s agenda for the rest of the year. She fears creation of a two-tier system—one for hedge funds and other large traders and a more limited tier for everyone else. Her goal includes passing a series of rules designed to update the basic principle of market fairness that was established at the agency’s founding during the New Deal, according to Thomson Reuters Checkpoint’s WG&L Accounting & Compliance Alert. (more…)

US Congress Looks for New Ways to Tax Financial Services

During a congressional hearing, lawmakers searched for ways to use the tax code to dampen short-term speculation in the financial markets and close the budget deficit. To fix the problem, they suggested changes in tax structures, including discounted capital gains tax for long-term investors, transaction tax, bank tax, and financial speculation tax, Thomson Reuters WG&L Accounting & Compliance Alert reports.

(more…)

Survival of the fittest regulation

Trying prevent future financial crises by drafting new global regulations will do more harm than good, argues Marc Levinson in the latest edition of Foreign Affairs magazine.

In a closely argued article, Levinson champions diversity in regulation. The Senior Fellow for International Business at the Council on Foreign Relations warns: “If governments adopt the same regulations, they will make the same mistakes. Instead, financial regulation must be the task of individual governments and not multilateral committees.”

(more…)

INTERVIEW-Russia’s richest man calls for less red tape

By Polina Devitt

MOSCOW, April 30 (Reuters) – Reducing regulation is a key to stimulating Russia’s domestic growth after the recession, Novolipetsk Steel Chairman Vladimir Lisin said on Friday.

“In my opinion, the biggest problem is stimulating production growth,” Lisin, ranked Russia’s richest man by Forbes magazine, said in an e-mailed response to questions. “And how to stimulate (production) when business is regulated so tightly.”

(more…)

from The Great Debate:

America needs sensible, bipartisan financial reform now

-- By Rob Nichols is president & COO of the Financial Services Forum. The views expressed are his own. --

Reform of our financial supervisory framework is a top priority for the members of the Financial Services Forum, and should be for our nation. In addition to protecting investors, consumers, and shareholders, bipartisan financial regulatory reform will bring much needed certainty to our capital and credit markets and help to fuel our economy and create jobs.

To maintain a position of financial and economic leadership, the United States needs a 21st century framework of financial supervision that protects the interests of depositors, investors, and consumers, and policy holders; ensures the safety and soundness of financial institutions; ensures financial system stability; and ensures an effective and competitive financial marketplace to fuel economic growth and job creation.  Stated another way, financial reform must minimize the chances of another fire, while providing the means for effectively fighting another crisis should it occur.

from Funds Hub:

Rasmussen gives the bankers both barrels

RTXBHPA_Comp.jpgPoul Nyrup Rasmussen's visits to London are always value for money, and today was no exception as the president of the party of European socialists launched into a tirade against banker bonuses.

"When I listen to you it's like you're living in another world," he told an audience of financial executives and journalists at a Chatham House conference after a number of questions from the floor suggested EU plans for tighter regulation might be counter-productive.

"Have you heard about the recession? Do you know that we have lost 7 million jobs in Europe? Do you know that?

DAVOS – Business warns regulation may crimp recovery

By Ben Hirschler and Martin Howell

DAVOS, Switzerland, Jan 27 (Reuters) – Global business leaders warned Western governments on Wednesday that a populist crackdown on the financial industry could crimp a fragile recovery from the worst recession since the 1930s.

The worried response to U.S. President Barack Obama’s plans to curb big banks and a British assault on bankers’ pay came as 2,500 business leaders and policy makers met at the World Economic Forum in the Swiss ski resort of Davos.

Surveys produced for the annual conference showed global economic confidence on the rise after deep gloom in 2009 and a cautious return to hiring, especially in emerging markets.

UK finance executives worried by regulation – CBI

LONDON, Jan 18 (Reuters) – London’s status as a world financial centre is at risk due to a combination of rising regulation and global economic shifts, according to senior executives polled by Britain’s biggest business lobby.

London has emerged from the 2008 banking crisis but it faces fresh threats from a transfer of economic power to Asia, as well as potential unilateral regulatory action aimed at prevening a repeat of the financial meltdown, the Confederation of British Industry quoted company executives as saying in a report.

“London will lose market share, though it won’t diminish in importance,” Stephen Green, chief executive of HSBC, Europe’s biggest bank, told the CBI. “This is not because of the financial crisis, but because of shifts in the global economy.”

FACTBOX – 20 ways US House, Senate financial reforms differ

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.

  •