Gargantuan financial reform bill: It's not just for banks
The financial reform bill awaiting final votes in the House and Senate encompasses everything from banking to insurance to African minerals used in high-tech gadgets. Is that a good thing?
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• 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.Skip to next paragraph
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• 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.
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