On Thursday, January 21, House Financial Services Committee Chairman Barney Frank (D-MA) released a memo clarifying uncertainties surrounding the Consumer Financial Protection Agency (CFPA).  Chairman Frank addressed certain inaccuracies and reported that smaller community banks, credit unions, retail merchants, pay day lenders, check casher firms, and independent mortgage brokers will be subject to the rules issued by the CFPA for any extension of credit.  Congressman Frank emphasized the narrowness of the smaller financial institutions exception and clarified that the exception only applies to inspection.

Meanwhile, also on Thursday, January 21, President Obama made remarks concerning financial reform in an effort to mitigate excessive risk and to protect taxpayers.  The restrictions, as proposed, would not allow any bank or bank holding company to own, invest in, or sponsor hedge funds or private equity funds, or engage in proprietary trading operations for its own profits, unrelated to serving customers.  The President further proposed widening existing deposit caps to other forms of funding employed by large financial institutions.  Congressman Frank, on the same day, issued a statement welcoming President Obama’s remarks and highlighting the similarities between the President’s proposals and the provisions of the Wall Street Reform and Consumer Protection Act, which the House passed on December 11, 2009.

Read the Wall Street Reform and Consumer Protection Act.

Additionally, on Friday, January 22, the House Financial Services Committee held a hearing on financial industry compensation.  Those testifying before the Committee were:

• Lucian Bebchuk, Professor of Law, Economics and Finance, and Director of the Program on Corporate Government at Harvard Law School;
• Nell Minow, Editor and Founder, The Corporate Library; and
• Joseph Stiglitz, University Professor, Columbia Business School.

While nothing was settled during the hearing, the participants made numerous suggestions regarding model compensation program features, including the following:

• Equity compensation, including indexing options and stock grants, should be performance based;
• Equity awards should not be discretionary, and should instead be made on pre-determined dates;
• Any cashing out of restricted stock or options should utilize the average price of stock over a reasonable period of time;
• Incentive compensation should measure performance lasting over at least a year; and
• Long-term performance-based compensation should constitute the majority of compensation.