Bankruptcy

Senate Passes Financial Oversight Bill

By Meaghan Olson

Last December, the U.S. House of Representatives passed a financial oversight bill that would address many of the problems on Wall Street that led to the stock market collapse that touched off the Great Recession. Last week, as the New York Times reported, the Senate passed a similar bill.

Now, the two houses plan to work to unify their bills into one that can be signed into law.

Reforms Addressed

In the version of the bill that passed the Senate, changes to the current financial system would include:

• Provisions to curb abusive lending practices, especially in the mortgage industry
• Safeguards that would guarantee that large and complex companies could be liquidated - possibly in bankruptcy - without having taxpayers foot the bill
• Requirements that would force large banks to detach some of their profit-rich derivatives operations into separate entities (though this provision was not in the House?s version of the bill)
• The introduction of a ?Financial Stability Oversight Council,? which would be charged with highlighting troublesome trends that could prove dangerous for the whole economy
• The introduction of new rules for derivatives traders
• The requirement that hedge funds and similar companies register for regulation with the Securities and Exchange Commision (SEC)

The Senate?s passage of the bill is seen as a victory for the Obama administration, which has blamed the recession largely on a lack of oversight and accountability on Wall Street.

The Next Step for Finance Bill

In the coming weeks, as the Washington Post reports, a group of senators and representatives will work together to reconcile the differences in content between the two bills, aiming for a version that Obama could sign into law.

While the two versions are reportedly very similar at this stage, sources indicate that the main differences between the two include:

• Plans for regulating the complicated derivatives market
• Whether to ban banks? current practice of trading on their own accounts (proprietary trading)
• Whether to require a $150 billion fund from financial industry coffers to allow for emergency dissolution of any struggling firm
• Whether to create a separate agency charged with matters of consumer financial protection

According to sources, leaders in the House and Senate hope to reach a consensus on the provisions included in the legislation by July 4th of this year.

Full post as published by The Bankruptcy Blog on May 28, 2010 (boomark / email).