Senate Banking Committee Releases Financial Reform Legislation (Restoring American Financial Stability Act of 2010): CMSA Summary
On Monday, March 15, the Senate Banking Committee released it's draft of the "Restoring American Financial Stability Act of 2010" [click name to download it].
It is long: 1336 pages.
And no surprise at this: it is complicated.
Provisions include creation of a consumer protection watchdog housed in the Federal Reserve; creation of a nine-member Financial Stability Oversight Council chaired by the Treasury Secretary; an “advanced warning system” for systemic risk; an end to “too big to fail;” increased transparency and accountability for “exotic” instruments such as derivatives; streamlined federal bank supervision; increased regulation of credit rating agencies; and a “say on pay” provision for shareholders on executive compensation
Fortunately, the Commercial Mortgage Securities Association (CMSA) furnished a preliminary summary of the bill [click to download it] - it is 11 pages.
Note, however, that the CMSA summary focuses (as it should) upon issues important to its members. So, if you are a bank or a life insurance company, you probably need to reach out to your industry advocate group for details of importance to you. (Did I say "this is complicated?")
Here is the summary of the summary furnished by the CMSA (further proof that this is complicated):
• For ABS, including CMBS, a reduction in the retention requirement by “originators” and/or “securitizers” from 10% to 5% and a clarification that this applies only to securitized loans;
• A requirement that regulators (the OCC, the FDIC and the SEC acting jointly) tailor retention rules by “asset class";
• Regulator authority to lower or eliminate retention if “underwriting standards” (as jointly established by the regulators) are satisfied, or if the regulators jointly find that the reduction or elimination of the retention is appropriate for any other reason;
• Enhanced Credit Rating Agency transparency for investors and related operating requirements;
• Modification of Treasury’s proposal that the SEC direct credit rating agencies (CRAs) to “differentiate” ratings with a requirement that CRAs disclose the basis of ratings and that symbols be used consistently across the types of securities to which they apply (with the CRA discretion to differentiate if chosen).
Remember, the House already passed financial reform legislation last fall. So, this bill will be debated in the Senate, and then if it passes, it'll go to joint committee for reconciliation.
No doubt, we'll be reading much about this from many sources. In the interim, here are my quick thoughts:
- Time is short, and the mine field already is full of controversial issues (such as health care). Mid-term elections are approaching; and after August, a significant portion of Congress will have one thing in mind: re-election. And thus no time for financial reform.
- This is a long, long, long bill. This is complicated. One criticism of the American Recovery and Investment Act [track it here] was that it was long and complicated. A topic as important as financial reform needs careful consideration. This just strikes me as too much with not enough: is there really enough time and attention bandwidth in Congress to give this topic the proper consideration?
- U.S. Senate Banking Committee Chairman Chris Dodd (D-CT) is not running for reelection. He is the key in keeping the necessary focus, and in acting as the moderator and mediator in this process. This is good. But, as the next bullet shows, he isn't pulling the other side of the aisle with him (yet).
- But I still come back to this point: is a 5 month period (full of other political issues) really enough time to vet a Senate Bill and a House Bill, and then to overhaul the financial services industry? This is an overhaul of a very, very important industry. Sure, other topics in front of Congress are important, such as education and the overhaul of the "no child left behind" bill. But will the net effect of a financial reform bill, passed under intense time pressure, simply give us a financial services industry "left behind" in a very competitive world economy? The "new" world order no longer has the US imposing our will on the world financial markets. There's real competition now.
- Already, the committee’s ranking Republican, Richard Shelby, R-Ala., and nine other Republicans on the committee sent Dodd a letter saying the proposed timetable does not give members adequate time to understand the scope of the proposal: “Given the sheer magnitude and complexity of the financial reform package you intend to introduce, this legislation will inevitably have a substantial impact on our financial system and overall economy. Accordingly, we urge you to allow for sufficient time to review the language.”
This is complicated.
Please post your initial thoughts, comments, and questions blow.
If not now, when? Wall Street is fighting regulation tooth and nail. If anything the bill does not go far enough. Wall Street has already nearly destroyed our economy. We face continued malfeasance and destruction by parties able to reap huge rewards but leave the losses to harm the rest of us.
In this political climate the Republicans are not going to agree to any major bill. Undoubtedly there are many imperfections in the bill. The danger faced in not passing it outweighs any potential harm by passing it.
When Wall Street can and willing does make loans to a country (Greece) in violation of Treaty terms and then place bets against the solvency of the it's client there is inherently a conflict of interest that must be eliminated.
Wall Street deliberately sold bonds secured by inadequate assets as AAA and then bought and sold CDOs willy nilly. CDOs are not insurance, then are merely fancy puts and calls.
CDOs are an infection that needs to be lanced now.