Regulatory Reform

On Friday, April 16, 2010, President Obama threatened to veto a Wall Street reform bill that fails to regulate the derivatives market.  The President stated that he “want[s] to see what emerges, but [he] will veto legislation that does not bring the derivatives market under control in some sort of regulatory framework and assures that we do not have the same sort of mess that we've seen in the past.”  President Obama made these comments to reporters at the President’s Economic Recovery Advisory Board (PERAB) meeting in the Roosevelt Room.

The Wall Street Transparency and Accountability Act

On Friday, April 16, 2010, Senator Blanche Lincoln (D-AR), chair of the Senate Committee on Agriculture, Nutrition and Forestry, introduced the Committee's draft of "The Wall Street Transparency and Accountability Act."  Senator Lincoln's proposed bill contains stringent provisions regarding over-the-counter derivatives.  The Senate Committee on Agriculture, Nutrition and Forestry approved the bill on Wednesday, April 21, 2010 by a vote of 13 to 8.  In approving the bill, the Committee allowed an exemption for derivatives used to hedge against movements in foreign currency exchange rates.

Some of the highlights of the bill include the following:

  • Increasing transparency to the over-the-counter market with real-time price reporting;

  • Requiring mandatory trading and clearing;

  • Prohibiting the Federal Reserve and FDIC from providing federal funds to financial institutions who engage in risky derivative transactions;

  • Allowing regulators to close loopholes they find; Imposing a fiduciary duty, similar to that for investment advisors, on swap dealers;

  • Regulating foreign exchange swaps; and

  • Providing broad enforcement authority to federal regulators.

Read the Wall Street Transparency and Accountability Act as introduced

Read the section-by-section analysis of the Wall Street Transparency and Accountability Act as introduced

Read the summary of the Wall Street Transparency and Accountability Act as introduced.

Allegations Against Goldman Sachs

On Friday, April 16, 2010, the Securities and Exchange Commission (SEC) announced the filing of charges against Goldman, Sachs & Co. and one of its vice presidents for allegedly making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation that Goldman Sachs structured and marketed to investors.  The SEC is seeking injunctive relief, disgorgement of profits, prejudgment interest, and other civil penalties.

Additionally, on Tuesday, April 20, 2010, the United Kingdom Financial Services Authority and the German Federal Financial Supervisory Authority announced the commencement of formal investigations into Goldman Sachs International relating to SEC allegations.

Read the SEC's press release 

Read the Financial Services Authority statement.

Financial Lessons Learned in Europe

On Monday, April 19, 2010, the European Central Bank published its "Report on the Lessons Learned from the Financial Crisis with Regard to the Functioning of European Financial Market Infrastructures."  The Report focuses on four challenges faced by the European financial markets and institutions: (1) information flows following a default; (2) default management; (3) behavioral factors that affected market liquidity conditions adversely; and (4) issues relating to the over-the-counter (OTC) markets.

Read the European Central Bank's press release, which includes a link to a PDF of the Report.