Congress finally getting serious about regulating financial institutions
Filed under: Economy, Investing
Congress dragged its feet all year to try to get a comprehensive financial package out of the House Financial Services Committee. But members of Congress have realized that isn't going to happen, and the public is getting impatient to see them reign in abuses by financial institutions that took us down the road to financial disaster.Finally, in the past two weeks, bills have been moving out of the committee, including a bill to reform credit-rating agencies, a bill to require most hedge funds and private-equity funds to register with the SEC, and a bill to create a new consumer financial-protection agency. The committee is now ready to take up the most difficult task -- a bill to make sure taxpayers will never again have to bail out Wall Street.
So let's take a closer look at the changes you can expect if they pass the House and make it to the Senate unchanged.
First, here are some of the key changes that the credit rating agency reform bill would make:
• Clarify consumers' ability to sue credit-rating agencies (or Nationally Recognized Statistical Rating Organizations), and clarifies that Securities and Exchange Commission regulations or state regulations do not afford a defense against civil anti-fraud actions.
• Require supervision of NRSROs and authorizes the SEC to sanction supervisors who fail to do so.
• Require each NRSRO to make up at least one third of its board with independent directors who oversee policies and procedures aimed at preventing conflicts of interest and improving internal controls.
• Mitigate conflicts of interest that arise from the issuer-pays model for compensation. Currently, the issuer of the bond pays for the rating, which often creates conflicts and potential conflicts of interest.
• Require greater public disclosure about the internal operations of NRSROs, so the public will better understand who pays for the ratings reports.
Changes outlined by the bill related to hedge funds and private-equity funds include:
• Mandate registration for all private advisers to private pools of capital regulators, to clarify how these entities operate and whether their actions pose a threat to the financial system as a whole.
• Require new record-keeping and disclosure for private advisers, so regulators can evaluate both individual firms and entire market segments that currently have no meaningful regulation, without posing undue burdens on those industries.
• Set basic ground rules for advisers to hedge funds, private equity firms, single-family offices, and other private in order for them to continue to play in our capital markets. Regulators will have authority to examine the records of these previously secretive investment advisers.
And the change that consumers want most: the creation of the Consumer Financial Protection Agency, which would:
• Be responsible for rule-making, examination, and enforcement of financial institutions that provide consumers with financial products and services.
• Address any unfair, deceptive, and abusive acts and practices that the agency identifies.
• Examine banks and non-bank institutions for compliance with the consumer banking laws, and enforce against violations of those standards.
The act would also creates a Consumer Financial Protection Oversight Board and a Consumer Advisory Board.
The Oversight Board would include the Chairmen of the Federal Reserve, the FDIC, the NCUA, and the FTC as well as the head of the new National Bank Supervisor, the Secretary of HUD, and the Chairman of the Liaison Committee of Representatives of State agencies to the Financial Institutions Examination Council. The director would appoint five members from the fields of consumer protection, fair lending and civil rights, or from financial institutions that primarily serve underserved communities.
The Consumer Advisory Board would be a panel of experts selected by the director to represent the interests of providers and consumers of financial products
How quickly these bills will move through Congress is anyone's guess. Congress often passes major legislation like this after rushing it through just before it adjourns for the holidays. At this rate, legislators will need to follow that usual tactic if the bills are going to pass Congress and get to the President's desk this year.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.
First, here are some of the key changes that the credit rating agency reform bill would make:
• Clarify consumers' ability to sue credit-rating agencies (or Nationally Recognized Statistical Rating Organizations), and clarifies that Securities and Exchange Commission regulations or state regulations do not afford a defense against civil anti-fraud actions.
• Require supervision of NRSROs and authorizes the SEC to sanction supervisors who fail to do so.
• Require each NRSRO to make up at least one third of its board with independent directors who oversee policies and procedures aimed at preventing conflicts of interest and improving internal controls.
• Mitigate conflicts of interest that arise from the issuer-pays model for compensation. Currently, the issuer of the bond pays for the rating, which often creates conflicts and potential conflicts of interest.
• Require greater public disclosure about the internal operations of NRSROs, so the public will better understand who pays for the ratings reports.
Changes outlined by the bill related to hedge funds and private-equity funds include:
• Mandate registration for all private advisers to private pools of capital regulators, to clarify how these entities operate and whether their actions pose a threat to the financial system as a whole.
• Require new record-keeping and disclosure for private advisers, so regulators can evaluate both individual firms and entire market segments that currently have no meaningful regulation, without posing undue burdens on those industries.
• Set basic ground rules for advisers to hedge funds, private equity firms, single-family offices, and other private in order for them to continue to play in our capital markets. Regulators will have authority to examine the records of these previously secretive investment advisers.
And the change that consumers want most: the creation of the Consumer Financial Protection Agency, which would:
• Be responsible for rule-making, examination, and enforcement of financial institutions that provide consumers with financial products and services.
• Address any unfair, deceptive, and abusive acts and practices that the agency identifies.
• Examine banks and non-bank institutions for compliance with the consumer banking laws, and enforce against violations of those standards.
The act would also creates a Consumer Financial Protection Oversight Board and a Consumer Advisory Board.
The Oversight Board would include the Chairmen of the Federal Reserve, the FDIC, the NCUA, and the FTC as well as the head of the new National Bank Supervisor, the Secretary of HUD, and the Chairman of the Liaison Committee of Representatives of State agencies to the Financial Institutions Examination Council. The director would appoint five members from the fields of consumer protection, fair lending and civil rights, or from financial institutions that primarily serve underserved communities.
The Consumer Advisory Board would be a panel of experts selected by the director to represent the interests of providers and consumers of financial products
How quickly these bills will move through Congress is anyone's guess. Congress often passes major legislation like this after rushing it through just before it adjourns for the holidays. At this rate, legislators will need to follow that usual tactic if the bills are going to pass Congress and get to the President's desk this year.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.
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Reader Comments (Page 1 of 3)
10-29-2009 @ 2:14PM
dave said...
isnt regulations what got us into this jam? They should stay out
Reply
10-29-2009 @ 4:39PM
sonnype@aol.com said...
dave should watch more PBS and less American Idol then he would know that the lack of regulation and not enforcing the regulations that we had is what got us into this mess
10-29-2009 @ 4:43PM
mickey said...
Oooh, congress seems to be worried about being re-elected. Hurry, hurry, pass some bills that look like they help the citizens you represent. Horseshi[. Try bailing me and the rest of the middle class out of the mess you put us in. Yes you!! You let these greedy people rape us of all of our hard earned equity and retirement, now you want to play doctor. Go to hell!!!!!!!
10-29-2009 @ 5:26PM
F Scharer said...
actually it was DEregulation that got us into this fix, that and the regulators telling banks that they should make more loans in the impoverished areas and use overtime in figuring debt ratios. All the lines between financial institutions got blurred and government allowed companies that have no business in finance handling accounts for the general public.
10-29-2009 @ 5:31PM
Earl said...
It was deregulation that got us into this mess
10-29-2009 @ 5:40PM
dang1067 said...
NO, BoBooo!!! It was "Deregulation" that got us into this mess... It started with ENRON escalated with Wall Street manipulation Commodity DEREGULATED practice aka: Commodity Futures Modernization Act of 2000 (“CFMA”) AKA: ENRON LOOPHOLE to which was engineered by that FVCKING RepubliCvnt AKA: RepubliCon Phill Gramm who's wife to a Chinese witch who worked for ENRON as one of their Chief Executuves... Phil Gramm snuck the Bill to disoriented Bill Clinton during his Lewinsky scandal ordeal. And the sleepy head moron Bill signed that damn Satanic bill... That's when everything started collapsing, oil- shoy up to near $150, gas was close to $7 per gal, shut down Morgan Stanley, BankofA, AIG, factories and manufacturers, airliners, causing many loosing their jobs, shooting unemployment sky high, driving homes foreclosures, Banks was collapsing left and right like flies, and then came the big cry-out of FEAR and panics of the DOOMSDAY hasting Congress with humongous mega bail-out of the century printing and borrowing TRILLION$$$$ of foreign moneys!!! That's how it started you dump FVCKS!!!!!
10-29-2009 @ 6:32PM
Heidi said...
NO the repeal of the Glass Stegal act fromthe 1930's that kept banks from acting like casinos is one of the main DEREGULATION Laws (called the Gram Leach Bliley) Also the commodities Futures modernization act of 2000 which DEREGULATED derivatives and allowed them to be traded in the shadow banking system without adequate supervision and no public market. If you would turn off FOX and get some real news you might understand what has actually happened but FOX and the corporate financial institutions DO NOT want people to know or really understand what caused the bankruptcy of firms who NEVER WROTE THE FIRST MORTGAGE. (Bear Sterns, Lehman Brothers, Paribas, etc. They only traded on leverage of 40 to 1 on Derivatives on those mortgages they bought from mortgage BROKERS (also unregulated) and then sold those CDOs and CDSs all over the world to unsuspecting banks, municipalites, funds in other countries amost causing a world wide collapse the like of which would make the great depression look like a day at the beach.
10-30-2009 @ 9:02AM
kdnorcutt said...
Dave
Regulations did not create this mess the removal of regulations is what caused this allowing banks to charge whatever they could for interest rates,fees etc. Utility companies to charge whatever for their services. allowed mortgages for people that did not qualify . allowed oil companies to run with the ball. this can go on. The deregulation of large industry,banking and wall street was the largest mistake our government ever made It is like letting your children run the streets at night without supervision nothing good will come of it. Violating the insider trading act can land you in jail but congress is able to do it legally. That comes under the rule do as I say not as I do. Nothing will come of this since the ones they want to regulate now are the same ones that pay for their campaigns and line their pockets.
10-29-2009 @ 2:25PM
joseph said...
Just regulate the oil speculators, they're hurting the working class, like me. Demand for oil is low but the prices are still up. Why?
Reply
10-29-2009 @ 2:27PM
Mike said...
No Dave, it was the lack of relevant regulations (non bank companies selling 'like bank' commodities), and just plain looking the other way by Gov regulators that partially caused this mess. The rest was just old fashion greed and corruption .
Reply
10-29-2009 @ 3:08PM
Herb said...
The tearing down of regulations is what got us into this trouble. The same tearing down that affected us with the S&L debacle in the late '80s. Congress creates these situations, for instance in this case of tearing down Glass Steagel and screwing with Fannie Mae, then we expect them to be able to correct them? Color me dubious...
Reply
10-29-2009 @ 3:47PM
Chuck said...
I wish just once one of the "main stream" media people would tell the real truth of the fact that the banks were pressured by the Congressional banking committees to make loans to way to many people that could not qualify otherwise and that is the root of the whole problem. Greed, he they were selling paper the same way they always had, the problem is that Barney Frank and his group of idiots had already tainted the paper with to many people unqualified to make the loan payments.
Reply
10-30-2009 @ 1:53AM
Bill said...
You are so right on this one. The fact is that Obama was one of these idiots who was forcing this issue with lawsuits. Then he has the odasity to say he inherited this mess when hisself, Barney Frank and others were the cause of it. The news reel of Barney Frank this past week says it all for this administration. Say he was going to kill banks and laughing about it along with Guithner sitting ther laughing along with him. This is no joke! Forcing banks to give loans to people who could not afford to repay them was criminal on their part. Fannie and Freddie should not have been allowed to exist after causing this disaster. Everyone wants to blame Wallstreet and Bush for this but it was actually members of congress and these people are still in office. In 2010 and 2012 the people in this country need to make the change and remove these corrupt a$$holes out.
10-29-2009 @ 3:52PM
Chris said...
They need to regulate themselves. I'd like to know why those in Washington, after serving for a time, feel they deserve the pay and perks for life after leaving office. If they had to live the same as you and I, with retirement, social security, and medicare...I am sure the mess their in would be cleaned up real fast. I wish someone would push for a bill to resind the pay and perks of our Washington elite. Man, these crooks and clowns aren't even risking their lives, or even doing phisical labor. We should be giving a great deal to vets and military coming home, not these clowns.
Reply
10-30-2009 @ 2:21AM
andrnewh said...
That's exactly how I feel - if they had the same insurance, SS and so on they would be in a hurry to make those changes.
10-29-2009 @ 3:53PM
cessnatx said...
How about a bill to make lawmakers consult the Constitution before doing something with taxpayer money? Why do we have to have a bill to spell things that are already in the Constitution?
Reply
10-29-2009 @ 7:49PM
unionsforever said...
They need to stop allowing buying stocks short. The idiots even allow people to buy stock short when they have no stock in the company. No skin in the game and then insure the lose. I call it out and out THEFT
Reply
10-29-2009 @ 4:43PM
sonnype said...
Dave should spent more time waching PBS with educational shows that explain how we got into this mess than watching American Idol.He would than know the the lack of regulation going back to the Clinton years is what got us into this mess
Reply
10-29-2009 @ 4:55PM
John Hoover said...
I think this is way past due. If it had been up to me we would have done this first and then worked on bailouts and stimulus.
Reply
10-29-2009 @ 5:23PM
Wendy said...
Congress needs to reign themselves in first and foremost! Their ridiculous overspending and bowing to the King Obama will be their (and unforunately our) undoing. They seem to constantly forget that we put them in D.C. and we can darn well send 'em home. Hurry 2010!!!
Reply