The Senate Banking Committee voted along party lines to approve the financial regulatory reform bill introduced last week by Chairman Christopher Dodd, D-Conn.
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The 13-10 vote will send the bill to the Senate floor, where it is likely to be heavily debated. Republicans had proposed over 400 amendments to the bill prior to the markup hearing on Monday evening, but they decided not to introduce them. The markup hearing had been expected to be long and contentious, but instead took only 21 minutes.
Dodd had been working for months with the ranking Republican member on his committee, Richard Shelby, R-Ala., and later a freshman senator, Bob Corker, R-Tenn., on a compromise for the bill, but ultimately decided to introduce his own version of the sweeping legislation last week. Shelby reportedly plans to continue to negotiate with Dodd on the bill, however.
This allows us to buy some time, if you will, to work on the product we need to present to our colleagues as a whole, said Dodd, according to The Washington Post. And thats an advantage.
Corker said he was still optimistic about the bill despite a partisan markup.
It is pretty unbelievable that after two years of hearings on arguably the biggest issue facing our panel in decades, the committee has passed a 1,300-page bill in a 21-minute, partisan markup. I dont know how you can call that anything but dysfunctional, he said in a statement. On the other hand, the optimistic comments from the chairman and ranking member, along with the actions of some of my colleagues on the committee, give me hope that there is still an opportunity to produce a sound piece of legislation that will merit broad bipartisan support from the full Senate and stand the test of time. My staff and I will continue to put forth the same efforts we have over the past few months toward that end.
Treasury Secretary Timothy Geithner had urged Dodd not to weaken the bill in a speech he delivered Monday (see Geithner Urges Strong Financial Reform Package). After the bills passage by the committee, he expressed support. This is a good day for the cause of financial reform, he said. I would like to commend Chairman Dodd for his leadership over the past year and his committee, which today voted a strong reform bill to the floor. We look forward to working with the full Senate to pass a bill that provides strong protection for consumers, strong constraints on risk-taking by large institutions, and strong tools to protect the economy and taxpayers from future crises.
The bill would create a Consumer Financial Protection Bureau within the Federal Reserve, rather than the standalone Consumer Financial Protection Agency that is in the version of the bill that was approved by the House last December.
The regulator would be able to examine and enforce rules at financial firms such as payday lenders, along with banks and credit unions with over $10 billion in assets. Banks with assets of $10 billion or less would be examined by the appropriate bank regulator. CPAs and tax preparers would be exempted from regulation by the bureau.
The bill would also create a new Office of Financial Literacy, along with a national consumer complaint hotline so consumers would have a single toll-free number to report problems with financial products and services.
The bill also includes the so-called Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, which prohibits large banks from doing proprietary trading using their own accounts or from owning hedge funds.
Shareholders would be given a say on pay with the right to a non-binding vote on executive pay at public companies. The legislation also gives the SEC authority to grant shareholders proxy access to nominate directors, and requires directors to win by a majority vote in uncontested elections. To be listed on an exchange, compensation committees would need to include only independent directors. They would have the authority to hire outside compensation consultants.
The legislation would also curb firms from becoming too big to fail by creating a way to safely liquidate failed financial firms and impose new capital and leverage requirements that would make it undesirable for financial firms to grow too large.
In addition, Dodds draft bill would create a Financial Stability Oversight Council to identify and address systemic risks posed by large, complex companies, products and activities before they threaten the stability of the economy. The council would make recommendations to regulators for increasingly stringent rules on companies that grow large and complex enough to pose a threat to the financial stability of the United States.
The bill provides the SEC and the Commodity Futures Trading Commission with authority to regulate over-the-counter derivatives. The bill uses the Obama administrations outline for a joint rulemaking process with the Financial Stability Oversight Council stepping in if the two agencies cant agree. However, this part of the bill is far from settled. Dodds summary of the draft legislation noted that Senators Jack Reed, D-R.I., and Judd Gregg, R-N.H., are working on a substitute amendment that may be offered later.
The bill would also streamline bank supervision to create greater clarity and accountability. The Federal Deposit Insurance Corp. would regulate state banks and thrifts of all sizes and bank-holding companies of state banks with assets below $50 billion. The Office of the Comptroller of the Currency would regulate national banks and federal thrifts of all sizes and the holding companies of national banks and federal thrifts with assets below $50 billion.
The Federal Reserve would regulate bank and thrift holding companies with assets of over $50 billion. The Office of Thrift Supervision would be eliminated. The legislation would leave in place the state banking system that governs most community banks.
Hedge funds would be required to register with the SEC as investment advisors and provide information about their trades and portfolios necessary to assess systemic risk. This data would be shared with the systemic risk regulator, and the SEC would report to Congress annually on how it uses this data to protect investors and market integrity.
The legislation would also raise the assets threshold for federal regulation of investment advisors from $25 million to $100 million, increasing the number of advisors under state supervision by roughly 28 percent.
The legislation would also create a new Office of National Insurance within the Treasury Department to monitor the insurance industry, and a new Office of Credit Rating Agencies at the SEC to strengthen regulation of credit rating agencies.