Senator Chris Dodd has introduced a massive bill on financial regulation reform. It is over 1100 pages and attached to this post. Below is a reprint from the summary of the major regulation bodies structure overhaul:
The Financial Institutions Regulatory Administration
- Independent: Headed by an independent chairman appointed by the President and confirmed by the Senate, a Vice Chairman experienced in state banking regulation, and a board including the chairmen of the FDIC and the Federal Reserve and two other independent members. It will be funded primarily
by assessments on the industry.
- Single Focused Agency: Combines the functions of the Office of the Comptroller of the Currency and the Office of Thrift Savings, the state bank supervisory functions of the Federal Deposit Insurance Corporation and the Federal Reserve, and the bank holding company supervision authority from the
- Dual Banking System: Preserves the dual banking system, leaving in place the state banking system that governs most of our nation’s community banks.
- Separate Community Bank Division: Establishes a separate division within the new regulator to
regulate community banks given the different supervisory issues they pose.
- Eliminates Charter Shopping: Stops financial institutions from choosing the easiest regulator, and stops fee-funded regulators from going easy on those they regulate to keep their business.
- Increases Accountability: Having a single regulator will mean an identifiable agency is held
responsible for shortcomings in the banking system.
- Speeds Action, Increases Efficiency: Ends slow, cumbersome, coordinated rulemaking that creates extra red tape and inconsistent enforcement of the same rules by agencies. Overlaps impose unnecessary costs on regulated institutions and their customers.
- Focuses the FDIC and the Federal Reserve: The FDIC will focus on its jobs as deposit insurer and resolver of failed institutions, retaining backup examination authority over troubled banks and gaining additional authority to accompany the new agency on examinations of healthy banks and holding companies to ensure it has sufficient information to perform its insurance functions. The Federal Reserve will focus on monetary policy without being distracted by responsibilities for bank oversight and consumer protections. The Federal Reserve will continue to play a key role in assessing financial stability and have guaranteed access to financial institutions and any needed information.
There is also a national office of insurance created.
The bill also strips away the joke of a consumer protection from the Federal Reserve and puts it clearly under the charter of the Consumer Financial Protection Agency (the CFPA is under attack by the U.S. Chamber of Commerce and their legislative puppets).
Consumer Protections in One Place: Consolidates consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, the Federal Reserve, the National Credit Union Administration, and the Federal Trade Commission.
Not mentioned in the summary, but Sections 1201-1204 in the legislative text change the Federal Reserve's Emergency Lending Authority. It requires transparency, a list of recipients, justifications for emergency lending. (p. 1125). A later provision allows a year delay in who the emergency lending recipient was. Recall we still have no idea who received $2 trillion in emergency Federal Reserve lending, despite Bloomberg's FOIA requests.
The structure of Federal Reserve Board of Governors is changed to have the regional Fed. directors be chosen by the Board of Governors instead of Commercial Banks. (p. 1127) Seemingly it stops at the Regional Fed. Bank Presidents, so hopefully we will see a flow chart on the new Fed. organization.
The bill has more tightening on derivatives than the House's drive a truck through it loophole, exempting most firms from disclosure and collateral requirements. Gee wiz, derivatives are the most cited thing in the financial economic Armageddon, so Dodd's bill is a huge improvement.
A draft bill proposed today by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, doesn’t match legislation in the House of Representatives that exempts most end-users from proposed rules reining in the $592 trillion over- the-counter derivatives market. Dodd’s bill more closely follows an Obama administration plan that grants a limited exception to contracts that qualify for hedging under accounting standard.
Here is Senator Dodd's summary and also attached to this post. I must point out someone has a sense of humor for financial institutions must prepare funeral plans for their demise.
On requiring banks to have increase capital injections:
Institutions can provide their own life support.
Funeral Plans: Requires large, complex companies to periodically submit plans for their rapid and orderly shutdown should the company go under.
Shall we all wear black when watching the bill mark-up?
Meanwhile the FDIC screwed up and gave thumbs up to 3 banks who later failed. The problem is not enough staff and a new review called the Merit Program, which isn't complete.
“Substituting Merit exams for full-scope examinations made it less likely that FDIC employees would be in a position to see if a previously strong bank was beginning to slide in the wrong direction,” Kelley said in an e-mail.
When the Merit program began in 2002, the FDIC staff had shrunk to 5,430 people from 6,452 in 2000 and 22,586 in 1991, near the end of the savings and loan crisis. After bottoming at 4,500 in 2007, the number has been increased to more than 6,000.
Dodd's bill mentions staffing and critical expertise needed to regulation the financial industry.
Goldman Sachs is already preparing to stop any possibility of their break up. Currently the claim is to say they aren't so big after all.
On my first pass review, this bill actually looks like some real reform, unlike the watered down, loophole ridden bills we are seeing come out of the Financial Services Committee in the house.
Please add your insights to this massive reform bill. There is no doubt any meaningful reforms will be attacked by lobbyists to make the hill look like it's covered in fire ants.