US Financial Market Regulation: Reform Overview
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Transcript of US Financial Market Regulation: Reform Overview
U.S. FINANCIAL MARKET REGULATION
Agenda
Comments on reform Reform timeline Financial Market regulation Recommendations Future of reform
Comments on Reform 1 year $600 M
“When this bill becomes law, the joyride on Wall Street will come to an end”
Revamping Financial Regulation
“The central question that we must address in this bill is how do we restore the faith of the American consumer? The core strength of the American economy is that people have faith in the system. That faith was shattered in this crisis, and we must do our best to bring it back.”
Timeline
2009June: Obama proposes sweeping reform December: House bill passed (223-202)
2010April 12: Republicans attack bill FilibusterMay 4: Shelby and Dodd dealMay 20: Senate bill passed (59-39)June 10: Conference committee
Financial Market Regulation Market oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings agencies Mortgages Companies too big to fail
Oversight: Can we get a warning? Financial Crisis
Obama: Call for accountability
House: Oversight board
Senate: Financial Stability Oversight Council
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Consumer Protection: Do we need it?
Overseen by 7 agencies
ObamaOne independent agency
with a missionLean
○ Budget = 2% of last year’s credit card penalties
“The financial meltdown of 2008 was essentially a
consumer-protection meltdown”
Consumer Protection: Where does it go? House: Stand alone agency
Does not regulate the auto industry
Senate: Bureau under FedAutonomous rules Independent director Provisions
○ Model disclosures○ Mortgage oversight○ Office of Financial Literacy○ Consumer hotline
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Federal Reserve: Can I get a loan? Crisis loans
House: Tighten limitsGAO audits as needed
Senate: Supervisory roleOne time GAO audit
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Derivatives: How much do we regulate? Market boom: $91 $592 trillion
Brought down AIG and Lehman Brothers
Obama: Transparent derivatives market
House: Regulation with exceptions
Senate: Separate derivatives tradingRegulated riskMore transparency
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Bank Restrictions: Investors first? Proprietary investments
Obama: Use the Volcker Rule
House: Ban threats to the financial system
Senate: Limit size and scope Clear lines of responsibility
○ FDIC, OCC and Federal Reserve
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Executive Pay
http://www.thedigeratilife.com/images/executive-pay.jpg
Executive Pay: Do I get a say? Out of control rewards system
Incentives for short-term gains
Obama: Reform executive pay
House: Say on pay
Senate: Say on pay and clawbacks
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Ratings: Who deserves AAA? No crisis warnings
AIG’s AAA credit rating
House: Register with SEC
Senate: Office of Credit Rating AgenciesDisclosure of methodologiesInvestor liability suits
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Mortgages: How much do you make?
Risky mortgages for fees
Obama: Stop abuses in mortgage market
House: Ban liar loans
Senate: Ban liar loansKeep skin in the game
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Too Big to Fail: Or not? Too big does fail
Obama: Size constraints
House: Bank tax
Senate: UnwindingLimit Fed loansIncreased regulationFDIC liquidation procedureFuneral plans
Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail
Other regulations
Capital standardsCapital to offset risk
Hedge fund transparencyRegistration
Increase oversight of SECEncourage whistleblowers
Recommendations 1- Independent consumer protection agency
2- No regulatory exemptionsBanks assets <$10 B = 95% of banks
3- Close loopholes Volcker rule
4- Register derivatives
5- Hold capital to cover losses
Conference: Senate + House = ?
StatusJune 10
○ House and Senate reps in ConferenceJuly 4
○ Revamped bill due to President Obama
Future conflictsBroker accountabilitySOX compliance in small companies
Conclusion“If Americans can have regulations to protect
their water, their meat, and their baby toys, they should not be denied the strictest
possible regulation to protect their money.”