FACTBOX: Major U.S. financial regulation initiatives

Fri Jul 31, 2009 2:40pm EDT

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(Reuters) - The Obama administration and congressional Democrats are moving ahead with a broad plan to tighten financial regulation, gaining U.S. House of Representatives approval on July 31 of legislation to impose new curbs on corporate executive pay.

Here is a summary of the overall financial regulation plan's components. Companies whose businesses could be at risk under the plan are listed under "political risk exposure."

EXECUTIVE PAY:

The House has approved a bill to give shareholders in public corporations annual, nonbinding votes on executive pay, while requiring more independence for compensation committees.

It would also require separate shareholder votes on golden parachutes and empower regulators to ban pay structures that encourage "inappropriate risks by financial institutions."

The bill goes next to the Senate, where its outlook is uncertain. President Barack Obama is pleased with the House bill, a White House spokesman said, although Obama has proposed a more limited set of executive pay curbs.

(For the House bill language, click on: here)

(For the administration bill language, click on: here)

OTC DERIVATIVES:

Over-the-counter derivatives should move onto public exchanges and go through clearinghouses, in most cases, under an agreement in principle worked between key House lawmakers.

The Obama administration has called for clearing of standardized OTC derivatives and would move them, as much as possible, onto regulated exchanges. Reporting would be required for transactions in "customized" derivatives.

The administration says regulations should apply to traders and markets so nothing escapes coverage. It is working on how to divide SEC and CFTC jurisdiction over derivatives.

Political risk exposure: JPMorgan Chase, Bank of America Corp, Citigroup, Goldman Sachs, CME Group Inc, IntercontinentalExchange

(For the House leaders' agreement, click here)

SYSTEMIC RISK REGULATION:

The Obama administration wants to put the Federal Reserve in charge of overseeing large, interconnected firms and "big picture," or systemic, financial risk in the economy.

Under the Obama plan, the Fed would work with a council of regulators. Some lawmakers, disappointed with the Fed's recent work in protecting consumers and managing risk, are skeptical about giving the central bank this new duty.

(For links to proposed legislation, please click on:here)

BANK REGULATION:

Bank oversight would be streamlined under the Obama plan with a new national bank supervisor, merging the Comptroller of the Currency and the Office of Thrift Supervision.

The plan would eliminate the charter for thrifts that underlies the U.S. savings and loan industry. Representative Barney Frank, chairman of the House Financial Services Committee, opposes killing the thrift charter.

(For the full bill language, please click on: here)

CONSUMER PROTECTION:

A new Consumer Financial Protection Agency would be formed, under the Obama plan, to oversee mortgages, credit cards and other financial products and services.

(For the full bill language, please click here)

CREDIT RATING AGENCIES:

Reliance by regulators on credit rating agencies would be reduced by repealing legal rules covering debt issuance that encourage the use of credit ratings, under the plan.

The Securities and Exchange Commission is already considering reforms for ratings agencies.

Political risk exposure: Moody's Corp, Standard & Poor's, Fitch Ratings.

(For bill language, please click on: here)

STUDENT LOANS:

The House education committee has approved legislation to revamp the $92-billion student loan market by closing the Federal Family Education Loan Program and shifting most student lending into the Education Department's Direct Loan program.

The bill must next go to the House floor for a vote.

Political risk exposure: Sallie Mae (SLM Corp), Student Loan Corp, JPMorgan, Bank of America, ITT Educational Services, Corinthian Colleges.

(For the full bill language, please click on: here)

RESOLUTION AUTHORITY:

A government mechanism would be set up for "orderly resolution of any financial holding company whose failure might threaten the stability of the financial system."

(For the full bill language, please click on: here)

CAPITAL AND LIQUIDITY STANDARDS:

Financial institutions would have to strengthen their capital cushions to absorb losses when times are tough, and make themselves more liquid, or able to move quickly in and out of various holdings, "with more stringent requirements for the largest and most interconnected firms," under the plan.

(For bill language, please click on: here)

SECURITIZATION:

Issuers of asset-backed securities would face new reporting requirements and be required to keep at least 5 percent of the performance risk in loans they securitize, under the plan.

Transactions would be more standardized and compensation of securitizers would be linked to long-term performance.

Political risk exposure: Citigroup, Wells Fargo, Bank of America, JPMorgan Chase.

(For bill language, please click on: here)

HEDGE FUNDS, PRIVATE EQUITY:

Obama would require hedge funds and other private pools of capital to register with the SEC. Lawmakers have introduced several bills in Congress to give the SEC authority for this.

Political risk exposure: Bridgewater Associates, D.E. Shaw Group, Farallon Capital Management, Citadel Investment Group, Fortress Investment Group and many others.

(For bill language, please click on: here%20iv%20reg%20advisers%20priv%20funds%207%2015%2009%20fnl.pdf)

SHORT-SELLING:

The SEC finalized a rule on July 27 to clamp down on naked short selling and is considering other rules on short-selling.

(For the SEC's statement on naked short selling, please click here)

INSURERS:

The administration has called for a new Treasury Department Office of National Insurance that would monitor the industry and gather data, but not regulate.

Political risk exposure: Allstate Corp, Travelers Cos Inc, Hartford Financial, MetLife Inc, Prudential Financial Inc.

(For the full bill language, please click on: here%20V%20Ofc%20Natl%20Ins%207-22-2009%20fnl.pdf)

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