US Financial Market Regulation: Reform Overview

U.S. FINANCIAL MARKET REGULATION

Agenda

Comments on reform Reform timeline Financial Market regulation Recommendations Future of reform

Comments on Reform 1 year $600 M

“When this bill becomes law, the joyride on Wall Street will come to an end”

Revamping Financial Regulation

“The central question that we must address in this bill is how do we restore the faith of the American consumer?  The core strength of the American economy is that people have faith in the system.  That faith was shattered in this crisis, and we must do our best to bring it back.”

Timeline

2009June: Obama proposes sweeping reform December: House bill passed (223-202)

2010April 12: Republicans attack bill FilibusterMay 4: Shelby and Dodd dealMay 20: Senate bill passed (59-39)June 10: Conference committee

Financial Market Regulation Market oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings agencies Mortgages Companies too big to fail

Oversight: Can we get a warning? Financial Crisis

Obama: Call for accountability

House: Oversight board

Senate: Financial Stability Oversight Council

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Consumer Protection: Do we need it?

Overseen by 7 agencies

ObamaOne independent agency

with a missionLean

○ Budget = 2% of last year’s credit card penalties

“The financial meltdown of 2008 was essentially a

consumer-protection meltdown”

Consumer Protection: Where does it go? House: Stand alone agency

Does not regulate the auto industry

Senate: Bureau under FedAutonomous rules Independent director Provisions

○ Model disclosures○ Mortgage oversight○ Office of Financial Literacy○ Consumer hotline

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Federal Reserve: Can I get a loan? Crisis loans

House: Tighten limitsGAO audits as needed

Senate: Supervisory roleOne time GAO audit

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Derivatives: How much do we regulate? Market boom: $91 $592 trillion

Brought down AIG and Lehman Brothers

Obama: Transparent derivatives market

House: Regulation with exceptions

Senate: Separate derivatives tradingRegulated riskMore transparency

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Bank Restrictions: Investors first? Proprietary investments

Obama: Use the Volcker Rule

House: Ban threats to the financial system

Senate: Limit size and scope Clear lines of responsibility

○ FDIC, OCC and Federal Reserve

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Executive Pay

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Executive Pay: Do I get a say? Out of control rewards system

Incentives for short-term gains

Obama: Reform executive pay

House: Say on pay

Senate: Say on pay and clawbacks

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Ratings: Who deserves AAA? No crisis warnings

AIG’s AAA credit rating

House: Register with SEC

Senate: Office of Credit Rating AgenciesDisclosure of methodologiesInvestor liability suits

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Mortgages: How much do you make?

Risky mortgages for fees

Obama: Stop abuses in mortgage market

House: Ban liar loans

Senate: Ban liar loansKeep skin in the game

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Too Big to Fail: Or not? Too big does fail

Obama: Size constraints

House: Bank tax

Senate: UnwindingLimit Fed loansIncreased regulationFDIC liquidation procedureFuneral plans

Financial Market Regulation Oversight Consumer protection Federal Reserve Derivatives Bank restrictions Executive pay Ratings Mortgages Too big to fail

Other regulations

Capital standardsCapital to offset risk

Hedge fund transparencyRegistration

Increase oversight of SECEncourage whistleblowers

Recommendations 1- Independent consumer protection agency

2- No regulatory exemptionsBanks assets <$10 B = 95% of banks

3- Close loopholes Volcker rule

4- Register derivatives

5- Hold capital to cover losses

Conference: Senate + House = ?

StatusJune 10

○ House and Senate reps in ConferenceJuly 4

○ Revamped bill due to President Obama

Future conflictsBroker accountabilitySOX compliance in small companies

Conclusion“If Americans can have regulations to protect

their water, their meat, and their baby toys, they should not be denied the strictest

possible regulation to protect their money.”