President Obama signed into law on Wednesday a sweeping expansion of federal financial regulation, marking another — and perhaps last — major legislative victory before the midterm elections in November, which could recast the Congressional landscape.
The signature achievement — a response to the 2008 financial crisis that fundamentally alters the relationship between Wall Street and the federal officials charged with regulating it — is a culmination of two years of fierce lobbying and intense debate over how to deal with the financial excesses that tipped the nation into the worst recession since the Great Depression.
The law subjects more financial companies to federal oversight, regulates many derivatives contracts and creates a panel to detect risks as well as a consumer protection regulator. A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years.
Mr. Obama took pains to try to show how the complex legislation, with is dense pages on derivatives practices, will protect ordinary Americans.
“If you’ve ever applied for a credit card, a student loan, or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,” Mr. Obama said. “But what often happens as a result, is that many Americans are caught by hidden fees and penalties, or saddled with loans they can’t afford.”
He said the law would crack down on abusive practices in the mortgage industry, simplifying contracts and ending hidden fees and penalties, “so folks know what they’re signing.”
So what exactly is in the bill? According to a summary in the Christian Science Monitor
A bill summary by Capitol Hill staff members includes 100 points. Here’s a shorter take, 10 points, focusing on less-publicized elements as well as some core provisions:
• A first-ever federal office focused on the insurance industry will monitor the insurance industry for systemic risk. The industry will remain regulated largely at the state level.
• FDIC deposit insurance for account-holders at banks, thrift institutions, and credit unions will be raised to $250,000 (from $100,000) retroactive to Jan. 1, 2008.
• The State Department would have to submit an “illicit minerals trade strategy” for the Congo region. Manufacturers that use minerals originating in the Democratic Republic of Congo would have to disclose measures taken to exercise due diligence on the source and chain of custody of the materials. The provision, sponsored by Sen. Sam Brownback (R) of Kansas, could affect high-tech firms like Intel and Apple.
• The bill beefs up the powers of the Securities and Exchange Commission, including extra funds for enforcement. The SEC would get new power to impose fiduriary responsibility on investment brokers. That means the brokers would have to offer advice based on the best interest of clients, not broker fees. Consumer advocates say the bill should have mandated this change, not allowed the SEC to consider it.
• New disclosure rules would apply to credit-rating firms, along with new penalties if the firms are irresponsible. In a nod to an amendment backed by Sen. Al Franken (D) of Minnesota, the bill seeks to end “shopping for ratings” by calling for the SEC to propose ways to prevent issuers of asset-backed securities from picking the firm they think will give the highest rating.
• Shareholders would get a “say on pay,” with the right to a nonbinding vote on executive pay and golden parachutes. Standards for listing on an exchange would require that compensation committees include only independent directors.
• Reforms would reshape Federal Reserve powers, including a ban on Fed bailouts targeted at specific firms (like AIG) in the future. The presidents of regional Fed banks would be selected entirely by directors representing the public, and not partly by directors representing banks that the Fed regulates.
• The bill creates a new Consumer Financial Protection Bureau to consoldiate duties now charged to various federal agencies. It would have a consumer hot line, for questions on things like mortgages, and a new office of financial literacy.
• A Financial Stability Oversight Council of top economic regulators will monitor systemwide risks. The bill summary says this group will ask the Federal Reserve to adopt “increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.”
• An “orderly liquidation” mechanism would allow the Federal Deposit Insurance Corp. (FDIC) to dismantle large financial companies that are on the brink of failure. Shareholders and unsecured creditors would bear losses, to end taxpayer bailouts. But the bill also allows the FDIC to shelter solvent banks from having to bear losses if there is a threat to overall US financial stability
Thank you to Barney Frank, Chris Dodd, Olympia Snowe, Susan Collins and Scott Brown and all the Democrats except Ben Nelson we have a start and reining in the runway, unregulated financial system.