Most of our Wall Street reform attention has been focused on a couple of the most high-stakes pivot points in the legislation, like whether it would create strict rules governing derivatives trading (sort of), move derivative trading desks out of federally insured financial institutions and in to separate affiliates? (mostly) or limit — or end — banks’ ability to gamble with their profits (largely.)
But what about the other major pieces of the bill? The provisions over which people fought early in the game, like consumer protection, that fell out of the headlines because there was never any doubt they’d survive in some form or another? Here are your answers:Resolution
At the outset of the financial reform fight, Republicans made a huge deal about how to wind down failed firms. As originally written, the bill would have created a liquidation fund — billions of dollars raised through a fee assessment on financial firms — to help liquidate big failed firms. Republicans alleged — in a mostly political fight — that creating the fund in advance (a.k.a. ex-ante) would create an incentive for firms to take more risk. Most Democrats disagreed –except at the Treasury Department. Under their influence, and in order to draw down the political melee, Democrats dropped the fund. It will not be in the final bill. The bill requires that money to be raised from other financial firms after (a.k.a. ex-post) the government liquidates the failed one.
This was a huge deal when it was included in the House bill, and a huger deal when the Senate adopted a slightly different version. It was, in the truest sense, the triumph of populism over powerful interests. The White House, the Fed, the Treasury, big banks all fiercely opposed this provision. The House bill would have required a regular, comprehensive audit of the Fed’s activities, going back to before the financial crisis. The Senate’s version would have limited it to a one-time audit of the Fed’s emergency lending activities during the financial crisis. Both provisions would require the Fed to publish the recipients of its cheap loans online. In conference, they found something of a balance. The audit is still one-time only. But in addition to emergency lending, the Fed will have to disclose, two years after the fact, details of its open-market transactions and the loans it makes through its discount window directly to banks.
The House bill would have created a stand-alone Consumer Financial Protection Agency, but would have exempted a number of lenders and other industries from falling under the agency’s jurisdiction. The Senate bill would have housed a Consumer Financial Protection Bureau in the Federal Reserve, but left it with broader authority. The final legislation very closely mirrors the Senate’s language, though auto dealers won a hard fought exemption in a major defeat for the White House. The rules the agency sets will create a nationwide regulatory floor; state regulations can be stricter, but not more lax, and national firms can only be exempted from federal rules on a case-by-case basis.
Credit Ratings Agencies
The final bill will give the government greater oversight of credit rating agencies, and allow investors to sue ratings agencies that knowingly (or negligently) give bad financial products the thumbs up. The Senate bill would have immediately ended a major conflict of interest that allows firms to shop around for good ratings, but in conference that was dialed back. The SEC will study the issue for two years after which regulators will address the problem.
There’s obviously more to the bill than what’s written here, but these are the biggest, and most fiercely-contested, provisions. Financial firms are already looking for ways around the new rules — in fact, they have been for some time. But this is what they have to contend with.