On Wednesday, December 2, 2009, the House Financial Services Committee finished working on a comprehensive set of legislative initiatives aimed at financial regulatory reform, which are reflected in The Wall Street Reform and Consumer Protection Act (H.R. 4173).  The Wall Street Reform Act, a combination of nine pieces of regulatory reform legislation previously passed by the House Financial Services Committee,^[1] was introduced to the floor of the House on Wednesday, December 9, 2009  and has been debated on for three days, with the expectation that it will be voted on today.  Many amendments have already been proposed.  The Act, through the combined language of multiple bills, provides for:

•  the creation of the Consumer Financial Protection Agency (CFPA);
• the creation of an inter-agency Financial Stability Council;
•  the establishment of an orderly process for dismantling financial firms that become so large and interconnected that their failure would pose a systemic risk to the financial markets;
• permitting shareholders with an advisory vote on executive compensation (referred to as "say on pay");
• the enhancement of SEC protection and regulatory authority and the regulation of over-the-counter derivatives;
• the incorporation of mortgage reform and anti-predatory lending provisions;
• increased standards for and regulation of credit agencies;
• increased regulation of nearly all financial advisors – including hedge funds and private equity firms; and
• the creation of the federal insurance office.

In response to the Wall Street Reform and Consumer Protection Act, Republicans in the House have issued a substitute piece of legislation to serve as an amendment to the Wall Street Reform Act.  This amendment would strike the Wall Street Reform Act and replace it with a significantly shorter bill, comprised of eight sections, as described below.  The eight titles are:

• the No More Bailouts Act, which amends the bankruptcy code, the Federal Reserve Act, and requires the Treasury Secretary to approve the use of the Federal Reserve's emergency authorities,
• the Financial Institutions Consumer Protection and Examination Council, which establishes a council comprised of federal and state regulatory authorities tasked with authority to issue uniform consumer protection rules,
• the Anti-Fraud Provisions, which increase civil and criminal penalties, maximize restitution for victims, improve surveillance, and allow for the foreign exchange of information,
•  the Over-the-Counter Derivative Markets, which alters procedures surrounding swaps or security-based swaps,
• the Corporate and Financial Institution Compensation Fairness, which provides for a non-binding advisory vote (referred to as "say-on-pay") once every three years and allows for state laws to preempt independent requirements for compensation committees of public companies,
• the Credit Rating Agencies, which renames the NRSRO from "Nationally Recognized Statistical Ratings Organization" to "Nationally Registered Statistical Rating Organizations,"
•  the Government-Sponsored Enterprises Reform, which eventually privatizes Fannie Mae and Freddie Mac and imposes numerous requirements on the two institutions, while lowering conforming loan limits, and
• the Federal Insurance Office (FIO), which mirrors related provisions in the Wall Street Reform and Consumer Protection Act.

Broadening Powers for the Office of the Comptroller of the Currency

On Wednesday, December 9, 2009, a concession was made by House leaders to allow for the preemption of state consumer protection laws for national banks by increasing the powers of the Office of the Comptroller of the Currency (OCC).  The idea to broaden the powers of the OCC was brought by Representative Melissa Bean (D-Illinois) and reaffirms the courts' deference to the OCC.  The concession allows for the preemption of equivalent state standards simultaneously across state lines and would allow the OCC to preempt any law that "prevents, significantly interferes with, or materially interferes" with the business of banking.

Hearing on Additional Reforms to the Securities Investor Protection Act

On December 3, 2009, Congressman Paul Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, announced that a third full day of testimony regarding the Madoff Ponzi scheme would be held on December 9.  This latest proceeding addressed policy issues regarding the Securities Investor Protection Corporation and could result in further changes to the Investor Protection Act, which was passed by the House Financial Services Committee in November. 

Read the Investor Protection Act.

[1] The passed legislation included in the Wall Street Reform Act consists of the Financial Stability Improvement Act, the Corporate and Financial Institution Compensation Fairness Act, the Over-the-Counter Derivatives Markets Act, the Consumer Financial Protection Agency Act, the Private Fund Investment Advisers Registration Act, the Accountability and Transparency in Rating Agencies Act, the Investor Protection Act, and the Federal Insurance Office Act.