On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced his latest draft financial regulatory reform bill. The bill creates a new consumer protection agency, which will be located within the Federal Reserve, with regulatory authority over financial products such as mortgages and credit cards. The legislation also creates a resolution authority framework to liquidate failed financial firms, imposes stricter capital and leverage requirements on banks, creates a systemic risk council, requires shareholders be allowed a non-binding vote on executive compensation, and imposes new rules and standards for credit rating agencies. The bill also alters the banking regulatory structure by giving the FDIC regulatory oversight of state banks with assets below $50 billion, giving the OCC authority over national banks and federal thrifts with assets below $50 billion, eliminates the Office of Thrift Savings, and gives the Federal Reserve authority over national banks and thrift holding companies with assets of over $50 billion. Finally, the bill contains language regarding the regulation of over-the-counter “OTC” derivatives that is identical to Dodd’s November draft bill, but Dodd has indicated his desire to replace those provisions with language currently being negotiated between Senator Jack Reed (D-RI) and Senator Judd Gregg (R-NH). Sources indicate Reed and Gregg may be unable to reach an agreement on such language, and with the markup scheduled to begin next Monday and hundreds of amendments expected to be filed, it remains to be seen how Dodd will handle these provisions.
Dodd and Bernanke Exchange Criticism Over Proposed New Fed Role
On Wednesday, Federal Reserve Bank Chairman Ben Bernanke and former Fed Chairman Paul Volcker testified before the House Financial Services Committee at a hearing examining the central bank’s regulatory duties. During his testimony and under questioning by Committee members, Bernanke criticized Senate Banking Chairman Dodd’s draft regulatory reform bill for its provisions which remove the Fed’s supervisory role over small banks, saying it will deprive the central bank of key information it uses to execute monetary policy. On Thursday, Dodd’s staff countered Bernanke’s criticism by citing former Fed Vice Chair Alice Rivlin’s statement from a July 2009 Senate Banking Committee hearing in which she stated, “I don’t think that supervising individual banks is important to making monetary policy. I know that was said around the table when I was at the Fed, but I didn’t really experience that we learned a lot from supervising particular banking institutions that was useful to monetary policy.”
President Obama Signs the HIRE Act
On Thursday, President Barack Obama signed the HIRE Act bill into law. The bill is a $38 billion package which includes $18 billion in tax breaks to small businesses and $20 billion for highway and transit systems. The bill exempts businesses that hire a person that has been unemployed for at least 60 days from paying the 6.2 percent Social Security tax on that specific employee through the end of the year. Additionally, businesses will receive a $1,000 tax credit if that worker stays on the job for one full year. The HIRE Act is a slimmed down version of a much larger bill that circulated through Congress in February which included pension law changes and other provisions that were ultimately removed.
Head of FINRA Stepping Down
Susan Merrill, the head of enforcement at the Financial Industry Regulatory Authority (FINRA), announced on Thursday she is stepping down after a tumultuous three years in her current position. Merrill’s tenure at FINRA has drawn criticism for missing what some consider to be the major causes of the financial crisis. She has yet to set a departure date or indicate what her future plans may be.