Academic

I would characterize this as one of the most rebloggingest blog posts I've ever written, but for those interested in who is winning the afternoon of financial reform (and I am one), here's Barney Frank's summary of the agreement so far; you'll note there isn't yet agreement on what to do with derivatives, the Volcker Rule, Frannie (which may not get addressed at all), and consumer protection.  Lots of interesting new regulation is on the way, however, that clawback provision on executive compensation alone could launch many a law review article:

Title III

AGREED TO - THRIFT PROVISIONS

·         Preserves the Thrift Charter

·         Abolishes the Office of Thrift Supervision

·         Transfers the Authority of the OTS mainly to the OCC

·         Establishes a Deputy Comptroller for Thrifts at the OCC

·         Clarifies Branching Authority of thrifts that convert to banks

·         House Employee Protections as provided for in the House passed bill.

AGREED TO ? New Offices of Minority and Women

AGREED TO ? Deposit Insurance Reforms: Permanent increase in deposit insurance for banks, thrifts and credit unions to $250,000, retroactive to January 1, 2008. 

Title IV: - RAISING STANDARDS AND REGULATING HEDGE FUNDS

AGREED TO

·         Fills Regulatory Gaps: Ends the ?shadow? financial system in which hedge funds and private equity funds operate by requiring those that manage over $150 million in assets provide regulators with critical information.

·         Register with the SEC: Requires hedge funds and private equity advisors to register with the SEC as investment advisers and provide information about their trades and portfolios necessary to assess systemic risk.  This data will be shared with the systemic risk regulator and the SEC will report to Congress annually on how it uses this data to protect investors and market integrity. 

·         Greater State Supervision: Raises the assets threshold for federal regulation of many investment advisers from $25 million to $100 million, a move expected to significantly increase the number of advisors under state supervision.  States have proven to be strong regulators in this area and subjecting more entities to state supervision will allow the SEC to focus its resources on newly registered hedge funds.

Title V: INSURANCE

AGREED TO

·         Federal Insurance Office:  Creates a new office within the Treasury Department to monitor the insurance industry and requires a study on ways to modernize insurance regulation and provide Congress with recommendations. 

·         Streamlines regulation of surplus lines insurance and reinsurance through state-based reforms.

·         Regulatory Considerations by the Federal Insurance Office expanded to include access to affordable insurance products by minorities, low- and moderate-income persons and underserved communities.

Title IX

AGREED TO - NEW REQUIREMENTS AND OVERSIGHT OF CREDIT RATING AGENCIES

·         Ends Shopping for Ratings: The SEC shall create a new mechanism to prevent issuers of asset backed-securities from picking the agency they think will give the highest rating, after conducting a study and after submission of the report to Congress.

·         New Office, New Focus at SEC: Creates an Office of Credit Ratings at the SEC with its own compliance staff and the authority to fine agencies.  The SEC is required to examine Nationally Recognized Statistical Ratings Organizations at least once a year and make key findings public. 

·         Disclosure: Requires Nationally Recognized Statistical Ratings Organizations to disclose their methodologies, their use of third parties for due diligence efforts, and their ratings track record.

·         Independent Information: Requires agencies to consider information in their ratings that comes to their attention from a source other than the organizations being rated if they find it credible.

·         Conflicts of Interest: Prohibits compliance officers from working on ratings, methodologies, or sales.

·         Liability: Investors could bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source.  

·         Right to Deregister: Gives the SEC the authority to deregister an agency for providing bad ratings over time. 

·         Education: Requires ratings analysts to pass qualifying exams and have continuing education.

·         Eliminates Many Statutory and Regulatory Requirements to Use NRSRO Ratings: Reduces over-reliance on ratings and encourages investors to conduct their own analysis.

·         Independent Boards: Requires at least half the members of NRSRO boards to be independent, with no financial stake in credit ratings.

AGREED TO - EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE

·         Independent Compensation Committees: Standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.

·         No Compensation for Lies: Requires that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that don?t comply with accounting standards.

·         SEC Review: Directs the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period.

AGREED TO - SEC AND IMPROVING INVESTOR PROTECTIONS

·         Encouraging Whistleblowers: Creates a program within the SEC to encourage people to report securities violations, creating rewards of up to 30% of funds recovered for information provided.

·         SEC Management Reform: Mandates a comprehensive outside consultant study of the SEC, an annual assessment of the SEC?s internal supervisory controls and GAO review of SEC management.

·         New Advocates for Investors:  Creates the Investment Advisory Committee, a committee of investors to advise the SEC on its regulatory priorities and practices; the Office of Investor Advocate in the SEC, to identify areas where investors have significant problems dealing with the SEC and provide them assistance; and an ombudsman to handle investor complaints.

AGREED TO - BETTER OVERSIGHT OF MUNICIPAL SECURITY ISSUER ADVISORS

·         Registers Municipal Advisors: Requires registration for municipal financial advisers, swap advisers, and investment brokers ? unregulated intermediaries who play key roles in the municipal bond market.  Subjects financial advisors, swap advisors, and investment brokers to rules enforced by the SEC or a designee.

·         Puts Investors First on the MSRB Board: Gives investor and public representatives a majority on the MSRB to better protect investors in the municipal securities market where there has been less transparency than in corporate debt markets.

·         Imposes a fiduciary duty on advisors to municipal securities issuers.

Title XI: AGREED TO - STRENGTHENING THE FEDERAL RESERVE

·         Federal Reserve Emergency Lending: Limits the Federal Reserve?s 13(3) emergency lending authority by prohibiting emergency lending to an individual entity.  Secretary of the Treasury must approve any lending program, programs must be broad based, and loans cannot be made to insolvent firms.  Collateral must be sufficient to protect taxpayers from losses.

·         Transparency ? GAO Audit: GAO will conduct a one-time audit of all Federal Reserve 13(3) emergency lending that took place during the financial crisis.  Details on all lending will be published on the Federal Reserve website by December 1, 2010.  In the future GAO will have authority to audit 13(3) and discount window lending, and open market transactions.

·         Transparency - Disclosure: Requires the Federal Reserve to disclose counterparties and information about amounts, terms and conditions of 13(3) and discount window lending, and open market transactions, with specified time delays.

·         Oversight Accountability: Creates a Vice Chairman for Supervision, a member of the Board of Governors of the Federal Reserve designated by the President, who will develop policy recommendations regarding supervision and regulation for the Board, and will report to Congress semi-annually on Board supervision and regulation efforts.

·         Federal Reserve Bank Governance: GAO will conduct a study of the current system for appointing Federal Reserve Bank directors, to examine whether the current system effectively represents the public, and whether there are actual or potential conflicts of interest.  It will also examine the establishment and operation of emergency lending facilities during the crisis and the Federal Reserve banks involved therein.  The GAO will identify measures that would improve reserve bank governance.

·         Election of Federal Reserve Bank Presidents: Presidents of the Federal Reserve Banks will be elected by class B directors - elected by district member banks to represent the public - and class C directors - appointed by the Board of Governors to represent the public.  Class A directors - elected by member banks to represent member banks ? will no longer vote for presidents of the Federal Reserve Banks.

·         Limits on Debt Guarantees: To prevent bank runs, the FDIC can guarantee debt of solvent insured banks, but only after meeting serious requirements: 2/3 majority of the Board and the FDIC board determine there is a threat to financial stability; the Treasury Secretary approves terms and conditions and sets a cap on overall guarantee amounts; the President activates an expedited process for Congressional approval.