Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, March 15, 2010

Dodd Releases The Democrats' Version of Regulatory Reform

Senator Chris Dodd, Chair of the Senate Banking Committee, just released the Senate Democrats' summary(Download FinancialReformSummary231510FINAL) of proposed federal financial reform.  (In case you've forgotten, the House passed a version last December.)  Here are some of the highlights, many of which were widely reported over the weekend:

1. The consumer protection "watchdog" will be housed in the Federal Reserve instead of being established as an independent agency.  The director will be appointed by the President and confirmed by the Senate, and it will have the authority to write and enforce consumer protection rules.

2. Creates a process for liquidating failed financial firms and imposes new capital and leverage requirements that make it undesirable to get too big.  It will require regulators to adopt the Volcker Rule, i.e., prohibit proprietary trading.

3. Creates a council to identify and address systemic risks before they threaten the economy's stability.  It will be composed of federal financial regulators and an independent member.

4. Eliminates loopholes for OTC derivatives, asset-backed securities, hedge funds, mortgage bankers, and payday lenders.  It will require central clearing and exchange trading for derivatives that can be cleared and will require margin for un-cleared trades.

5. Provides shareholders with a "Say on pay" nonbinding resolution on executive compensation and gives the SEC authority to grant shareholders proxy access to nominate directors. 

6. New rules on credit-rating agencies.  It will create an Office of Credit Ratings at the SEC and will require the SEC to examine NRSROs annually.  In addition, 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.

7. Strengthens oversight and empowers regulators to pursue financial fraud aggressively.  This includes requiring a study on whether broker dealers who give investment advice should be held to the same fiduciary standards as investment advisers.  It will also provide self-funding for the SEC.

There are many other provisions (including increased regulation of securitization and municipal securities, and increasing the accountability of the New York Federal Reserve Bank).  As always, the devil is in the details, and we can expect a lot of horse-trading in the weeks ahead.  Stay tuned!

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I hope this bill does not pass. I work for a small community bank and I do not believe this will be a good thing for anyone.

Posted by: Kim Murphy | Apr 10, 2010 6:29:38 AM

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