Sen. Christopher Dodd, D-Conn., has released a draft version of the financial regulatory reform legislation that he has been working to write since the House passed its own legislation last December.
Dodd had been negotiating on the package with two key Republicans on the Senate Banking Committee he chairs, ranking member Richard Shelby, R-Ala., and more recently Bob Corker, R-Tenn., but ultimately decided to release the draft bill without their support.
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 House version of the bill. The Obama administration has favored a standalone agency. The Consumer Financial Protection Bureau would be led by a presidentially appointed director who would need to be confirmed by the Senate.
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.
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 Securities and Exchange Commission 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 to the full committee.
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 advisers 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 advisers 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 Securities and Exchange Commission to strengthen regulation of credit rating agencies.
