"Federal financial regulations protect investors from financial risk and fraud. Since the 1980's, however, the trend has been deregulation to unfetter U.S. banks to compete globally. Foreign countries blame lax U.S. financial regulations for the global credit crisis. In November 2008, the G-20 called on Washington to increase regulation of hedge funds and other financial firms. (See U.S. Resists G-20 Summit Call)
On May 20, 2010, the Senate approved its version of the Bank Reform Bill.It sets up a Consumer Financial Protection Agency to be under the Federal Reserve. It gives regulators the authority to split up large banks so they don't become "too big to fail." It eliminates loopholes for hedge funds, derivatives and mortgage brokers. Known as the "Volcker Rule," it bans Wall Street banks from owning hedge funds. It gives states the right to regulate banks, overriding Federal regulations if needed to protect the public. It also suggests an independent agency that has the authority to review systematic risks that would affect the entire financial industry. It reduces executive pay by allowing shareholders a non-binding vote.(For more detail on this complicated bill, see Bank Reform Bill).
Financial Regulations Proposed in 2009
The Consumer Financial Protection Agency was originally proposed in 2009. Banks lobbied against it, but may be mollified if it is under the Fed. The other proposals from 2009 are still in limbo:
* Bank regulations would be consolidated under a new National Bank Supervisor.
* Banks would have to increase their capital cushion.
* Issuers of products sold on the secondary market would have to keep at least 5% of the value of their products sold. They would have new reporting requirements, as well.
* Credit rating agencies, such as Standard & Poor's and Moody's, would face regulations designed to reduce conflict of interest."
(Source: Reuters, Financial Initiatives, June 17, 2009)
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