Banking Law Prof Blog

Financial Reform Legislation: Conference Committee Action

This week's CSBS newsletter has a great summary of amendments to the "base legislative text" so far.  Conference debate continues next week.  Here's what CSBS has to say:

"  Reform Conference Panel Plows Through Bevy of Issues; More Next Week 

" This week saw three days of intense negotiations by the House-Senate conference committee on financial regulatory reform. Working from a 2,000-page "base text" with 12 major sections, this week's deliberations covered private funds, credit rating agencies, OTS/OCC merger, thrift charter, insurance, investor protection, executive compensation and corporate governance, systemic risk regulation, resolution authority and payments/clearing and settlement issues.

" The committee's tentative schedule calls for at least three more days of meetings next week, addressing the Consumer Financial Protection Bureau, predatory lending, remittances, interchange fees and access issues, prudential regulation, and derivatives.

" Of particular interest to CSBS and state financial regulators, the base text:

• Did not provide for state banking, insurance and securities regulators' non-voting membership on the Financial Stability Oversight Council;

• Included the Senate-approved Collins amendment that would eliminate Tier 1 capital treatment for trust-preferred securities;

• Did not eliminate the thrift charter;

• Did not provide for de novo interstate branching for banks (on par with existing thrift authority);

• Subjects state-chartered banks to national bank lending limits;

• Eliminated the thrift loophole to the 10% deposit cap;

• Contained the Senate-approved language regarding state enforcement and OCC preemption of state consumer protection laws;

• Did not include CSBS-supported language calling for coordination and consultation between the Consumer Financial Protection Bureau/Agency and state regulators.

The conference proceedings involve a series of votes on House- and Senate-proposed amendments to the base text. Some of the issues discussed or resolved this week included:

State Representation on FSOC - The House conferees' offer to the Senate Conferees includes language providing for state banking, insurance and securities commissioners to have non-voting seats on the Financial Services Oversight Council (FSOC).  While the Conferees' work on Title I is not complete, Senator Dodd and other Senate Conferees have expressed their support for this provision. 

Agency Consolidation – Conferees defeated a CSBS-opposed amendment put forth by Rep. Judy Biggert (R-Ill.) to consolidate all federal regulators. Conference Committee Chairman Barney Frank argued strongly against the amendment and in defense of the State banking system and community banks. The amendment failed along party lines.

OCC/OTS Merger/Federal Insurance Office – Conferees broadly agreed to merge the Office of Thrift Supervision into the Office of the Comptroller of the Currency. Conferees agreed to preserve the federal thrift charter going forward. Conferees also agreed to establish a Federal Insurance Office within the Treasury Department.

Deposit Insurance – On Tuesday, conferees voted to make permanent the increase in deposit insurance coverage to $250,000. The provision would make the increase retroactive to Jan. 1, 2008. Deposit insurance was raised to $250,000 on a temporary basis and would revert to $100,000 on Jan. 1, 2014, for most deposit accounts, without Congressional action. Conferees also discussed extending the current Transaction Account Guarantee program, though they have yet to agree on whether the extension will be permanent or for 2 years.  These two changes in coverage would lower the reserve ratio and thus require more premiums to rebuild the reserve ratio to a minimum of 1.15 percent. CSBS applauded the insurance changes because of the positive impact they would have upon community and regional banks, particularly in light of the extraordinary measures undertaken by the federal government that have benefited the nation's biggest banks.

FDIC Board Membership – Senator Bob Corker (R-Tenn.) proposed to the Senate conferees an amendment that would transfer the OTS's FDIC board seat to the Federal Reserve. The base text gives this seat to the Director of the Consumer Financial Protection Bureau/Agency. Chairman Dodd defended the provision in the base text as important to coordination between consumer protection and safety and soundness. Senator Corker's amendment was rejected by the Senate conferees.

Federal Reserve Governance – Conferees on Thursday agreed to a House proposal to eliminate the role of Class A directors (bankers) in selecting presidents at the Federal Reserve's 12 regional banks. In addition they dropped language requiring the President to appoint the president of the Federal Reserve Bank of New York.

Trust-Preferreds – House conferees agreed to an amendment proposed by Rep. Dennis Moore (D-Kan.) providing for grandfathered capital treatment for issuances prior to May 19, 2010, for bank holding companies with consolidated assets under $15 billion and for mutual holding companies of any size. The amendment was adopted by voice vote, and the House offer was sent over to the Senate. The Senate counteroffer is expected to limit the grandfathering to bank holding companies with $10 billion in assets include language clarifying that the Collins amendment is not intended to apply to foreign banks (though, as drafted, it does apply to intermediate U.S. holding companies).

Credit Rating Agencies - One of the most controversial ratings-agencies provisions is the "Franken amendment," which was included in the Senate bill by a vote of 64-35. This provision was also included in the conference base text. The Franken Amendment would have created an independent board to assign ratings agencies to rate issuances. The conferees on Wednesday agreed to change this to an SEC study of the Franken amendment as well as other means of dealing with conflicts of interest. Following the study, the SEC has to implement either an alternative approach that better serves the public interest or the Franken Amendment. The Conferees also agreed to language requiring a review of reliance in regulations and laws on credit agency ratings and a move away from such reliance.

Section 404 Exemption - Conferees approved a provision to permanently exempt companies with less than $75 million in market capitalization from having to comply with the Sarbanes-Oxley Act's Section 404(b) auditor attestation requirements.

Resolution Authority – Republicans through Congresswoman Capito offered an alternative to the House offer on resolution authority to push institutions through special bankruptcy provisions rather than give the FDIC initial resolution authority.  The Capito amendment was defeated along party lines.

Conference leaders have indicated they intend to wrap up work on the bill by Saturday, June 26. The bill would then go to the full House and Senate during the last week of June. If approved, the bill would be sent to the president before the July 4th congressional recess. "

Link to CSBS:  http://www.csbs.org//AM/Template.cfm?Section=Home 

(ag) June 18, 2009, in Congress, Financial Regulatory Reform

Financial Reform Legislation - An Incomplete Structure

Daniel Alpert's viewpoint article in today's New York Times details the gaps left by House and Senate financial reform bills -- unanswered questions to be addressed in the conference process and by agencies charged with implementing the legislation, which is now in conference.

1.  Capital requirements

2.  Appropriate lines of business for insured depository banks.

3.  How to regulate derivatives.

4.  How to regulate the credit rating agencies.

5.  Meaningful consumer financial protection.

Link to "Punting Financial Reform:"  http://dealbook.blogs.nytimes.com/2010/06/02/another-view-punting-financial-reform/?src=busln

(ag) June 2, 2010, in Financial Regulatory Reform