FACTBOX-Major US financial regulation initiatives

Tue Sep 8, 2009 7:00am EDT

 Sept 8 (Reuters) - With Congress returning from its August recess on
Tuesday, Democrats and the Obama administration will resume trying to advance a
broad plan to tighten regulation of banks and capital markets.
 The effort is bogged down in Congress amid other issues,
including healthcare reform, and with leadership of a key
Senate committee in question. (Related news, [ID:nN12152121])
 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:
 Many over-the-counter derivatives would be moved onto
public exchanges or go through clearinghouses, under an
agreement in principle worked out between key House lawmakers.
 The Obama administration wants clearing of standardized OTC
derivatives and would move them, as much as possible, onto
regulated exchanges, while 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 (JPM.N), Bank of
America Corp (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N),
CME Group Inc (CME.O), IntercontinentalExchange (ICE.N).
 (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.
 Disenchantment with the Fed is strongest in the Senate,
where some lawmakers favor giving the council more power.
 (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 (MCO.N), Standard &
Poor's MHP.N, Fitch Ratings (LBCP.PA).
 (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) SLM.N,
Student Loan Corp STU.N, JPMorgan, Bank of America, ITT
Educational Services (ESI.N), Corinthian Colleges (COCO.O).
 (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 (WFC.N),
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 (FIG.N) 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 (ALL.N), Travelers
Cos Inc (TRV.N), Hartford Financial (HIG.N), MetLife Inc
(MET.N), Prudential Financial Inc (PRU.N).
 (For the full bill language, please click on:
here%20V%20Ofc%20Natl%20Ins%207-22-2009%20fnl.pdf)







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