Posted on: Wednesday, November 11, 2009

Sweeping Financial Reform Bill

By Paul M. J. Suchecki
Tags: economic news, Obama Financial Reform, ...
One Comment

Share on Facebook

Yesterday, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) unveiled The Restoring American Financial Security Act of 2009, a reform bill that is breathtaking in its scope. Nine of the Democratic members of the committee introduced the proposal  to the press, stating that “The economic crisis was driven by an across-the-board failure to protect consumers. When consumer protections are handled by regulators whose primary responsibility is to safeguard the profitability of the companies they regulate, consumer protections don’t get the attention they need. The result has been unfair, deceptive, and abusive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.”

The key to the plan would be removal of bank supervision authority from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and the Office of Thrift Supervision, OTS, giving it to a new Financial Institutions Regulatory Administration, while leaving in place the state banking system.

• The bill would end the practice of financial institutions being able to choose their own regulators, as insurance giant, American International Group, AIG, did by choosing the notoriously lax OTS, after AIG bought a small savings and loan a decade ago. To date, AIG has cost taxpayers $180 billion.
• The bill establishes a new Office of National Insurance within the Treasury Department to monitor the insurance industry.
• For the first time there would be federal regulation of mortgage brokers and payday lenders insuring that companies offering identical financial products get regulated the same way as federally insured banks.
• The bill establishes the Agency for Financial Stability to monitor the economy for signs of risk. It gives the agency the authority to break up large companies that pose systemic risk to the nation’s financial structure, ending the assumption that some financial institutions are simply too big to fail.
• It establishes new oversight and requires transparency for financial derivatives and hedge funds, filling regulatory gaps.
• The proposal mandates that companies allow nonbinding votes by shareholders on executive pay and golden parachutes.
• It create a new Office of Financial Literacy.
• It established an Office of Credit Rating Agencies within the Securities and Exchange Commission, SEC, to regulate the credit rating agencies that exaggerated the solidity of mortgage backed securities. Companies that sell mortgage backed securities will now be required to retain a portion of the risk. The bill provides for additional investor protection through the SEC.
• The proposal establishes a new Consumer Financial Protection Agency, CFPA, to regulate consumer financial products. Authority would extend to hikes in credit card interest rates and overdraft fees. The CFPA would be charged with ending unfair, deceptive or abusive lending practices.  The agency could require more detailed consumer disclosure or even ban offerings like subprime mortgages. Washington’s current regulators have been roundly criticized for favoring large financial institutions over consumer interests. This agency is designed to give consumers a place at the table.

Banks are in an uproar over the proposed CFPA, since it can require detailed examination and levy fines for non compliance. Some of the most intense lobbying to combat the CFPA is by the banks that were propped up by billions of dollars in bailout money. Bank of America has spent $2.4 million in Capitol Hill lobbying this year, while Citigroup’s efforts have cost $4.25 million. Other financial firms have funneled millions through the US Chamber of Commerce, that has launched a $2-million advertising campaign opposing the agency.

The Independent Community Bankers of America said in a statement that  “The concept is a deeply flawed approach… [it] would ultimately lead to less choice for consumers through a less diverse and robust banking system.”

Yet, AFL-CIO President Richard Trumka backed Senator Dodd’s proposal as a “very significant step forward toward the kind of strong, comprehensive financial regulation that our country needs if we are to turn away from the practices that led to the economic crisis that did such harm to working people.”

“You’re given very few moments in history to make this kind of a difference,” Senator Dodd said at the press conference that announced the bill. “This is not a time for timidity in this area.”

The broad range of reforms threatens to hold up the passage of any significant financial regulation any time soon, because it would still have to go through the House. There is a move to strip out the legislation creating the Consumer Financial Protection Agency which closely matches the bill already passed by the lower chamber. If that verbiage is pared from the rest of the proposal and passes the Senate, legislation creating the CFPA could be signed by the President before the year’s end.

reverse aging