Tag: financial regulation

Isn’t Financial Reform Bill Supposed to be About Financial Reform?

Then why all the social policy? From Diana Furchtgott-Roth of the Manhattan Institute, “Racial, Gender Quotas in the Financial Bill?

I was searching the bill for a provision about derivatives. What did I find but Section 342, which declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America’s financial industry.

In addition to this bill’s well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau…all would get their own Office of Minority and Women Inclusion.

Furchtgott-Roth is referring not to the text of H.R. 4173, but rather to Section 342 of the House Committee Report: House Report 111-517 – DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT. 

The section, “OFFICE OF MINORITY AND WOMEN INCLUSION,” begins:

The title requires the establishment of offices of Minority and Women Inclusion by the Treasury Department, and the financial regulators, to coordinate technical assistance to minority-owned and women-owned businesses and to promote diversity in the workforce of the regulators.

It takes a mighty circuitous argument to claim this provision has anything to do with strengthening oversight and regulation of the U.S. financial system.

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Financial Regulation Bill Avoids an Unrestrained FTC

House Democratic conferees on H.R. 4213, the financial regulation bill, had pushed for language to unleash the Federal Trade Commission so it could go out and regulate as much federal commerce as it could get its hands on. The National Association of Manufacturers was one of 48 trade associations to join in a June 10 letter strongly objecting to the regulatory expansionism.

Fortunately, the Senate conferees showed little interest in turning a financial regulation bill into an “all things commercial regulation” bill. To summarize the back and forth at last night/this morning’s negotiations:

Chairman Henry Waxman (D-CA) of the House Energy and Commerce bill pressed hard for inclusion of the House language. After Senate conferees rejected his initial language, he offered a modified version that stripped out “aiding and abetting” and other enforcement provisions and asked for expanded rulemaking authority for the FTC with some extra tweaks for small firms. Again, the Senate rejected Chairman Waxman’s language. After 3 a.m., Chairman Frank said the House reluctantly accepted the reality of the Senate’s rejection and the conferees closed title 10, the consumer protection section.

Good, and thank you to the Senators.

And now, we’re sure Chairman Waxman will accept this setback and move on to other issues. The possiblity of unrestrained regulatory expansion by the FTC has receded into the background, never to worry us again.

More…
Dow Jones, “BANK BILL: FTC Misses Out On New Powers

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FTC: Just Not Powerful Enough?

One of the last things the Senate did before breaking for the Memorial Day recess was appoint conferees to the financial regulation bill, S. 3217, now H.R. 4173. One area we hope the Senate sticks to its guns on is refusing to accept House language that would turn the Federal Trade Commission into even-more-powerful regulatory agency.

The National Association of Manufacturers joined 28 other business groups representing manufacturers, retailers, marketers, advertisers and others in sending the Senate a letter objecting to the House language. Excerpt:

The provisions in question would eliminate procedural safeguards that were imposed upon FTC rulemaking decades ago, after Congress determined the Commission had repeatedly overstepped its regulatory authority. The legislation couples this unrestrained rulemaking authority with enforcement powers to seek civil penalties for unfair or deceptive acts or practices; to seek such penalties without coordinating with the Justice Department; and to pursue companies that allegedly provide “substantial assistance” in an FTC Act violation, even without actual knowledge of the violation. Taken together, these provisions grant such sweeping powers that the FTC could essentially act as an unelected legislature governing industries and sectors across the economy.

There has been remarkably little debate on the consequences of reversing the considered decisions of two earlier Congresses. In particular, there has been no opportunity for affected industries to appear at a hearing to present their concerns about the potential effect of these provisions on American commerce and our economic future. A proposal for Congress to delegate such sweeping new regulatory authority deserves more thorough deliberation.

The groups followed the Senate letter with a May 26 letter to the House.

Now that the opportunities for hearings on this specific legislative vehicles have been exhausted, the conference committee should just drop the FTC-authority-expansion language. If the House wants to pursue the Ueber-FTC as separate legislation, then that debate will shed light on the proposal.

We can’t imagine Americans want an unrestrained, unaccountable federal agency with authority over all economic activity.

After all, that’s what the EPA’s there for.

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Thankfully, Not Included in the Senate Financial Regulation Bill

Wrapping up loose ends in our blogging on the Senate financial regulation bill, we should note that the Senate did not consider Sen. Arlen Specter’s amendment to overturn the U.S. Supreme Court’s ruling in Stoneridge v. Scientific Atlanta, which would have expanded liability in securities fraud litigation to manufacturers and suppliers who took no part in the scheme. The NAM had “Key Voted” against the amendment, which would have empowered class-action attorneys to find more deep pockets they could dig into.

The reality is that with Sen. Specter’s defeat in the Pennsylvania Democratic Senate primary, he loses much of his ability to push unpopular legislation like the Stoneridge amendment.

Legislation from Sen. Herb Kohl (D-WI), on the other hand, definitely remains in play, even though his amendment, to overturn the U.S. Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., was not considered. The amendment, S.Amdt. 3788 also known as the Discount Pricing Consumer Protection Act, would have made resale price maintenance agreements per se violations of federal antitrust laws. Passage would be disservice to consumers and invite more litigation. (See this Shopfloor post for an explanation.)

Unfortunately, the Senate bill — S. 3217, converted into H.R. 4173 — does include “proxy access” provisions to federalize corporate governance rules and allow outside groups — unions, activists, etc. — to force their way into corporate decisionmaking to the detriment of the shareholders.

McClatchy covers the story today, Senate financial overhaul could bring change to the boardroom”:

Many lawmakers weren’t even aware that the provision was in the bill, said Sen. Judd Gregg, R-N.H., blaming the size of the 1,400-plus page bill.

“It is an inappropriate idea, especially inappropriate for the federal government to bury it in this bill. This language applies to every publicly traded corporation in America, not just the financial institutions. Why is it buried in this bill? It should not be in there,” Gregg said.

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Financial Regulation, Helpfully Focused

The Senate last week agreed to an amendment to the financial regulation bill, S. 3217, sponsored by Sen. David Vitter (D-LA) and Sen. Mark Pryor (D-AR). As The Wall Street Journal explained:

The measure restricts the Fed’s regulation to companies “predominantly engaged” in financial services, defined as those where at least 85% of annual revenue or consolidated assets come from activities related to finance.

The Journal chose the angle that the amendment exempted GE Capital Services, but the measure has value for other larger manufacturing companies that have developed their own financial opreations. Sen. Vitter issued a statement that makes the point:

“The Fed should not be regulating firms outside of its area of expertise, which is a practice that would only weaken our financial system. Sen. Pryor shared my concerns that previous language of the bill gave the federal government far too much power to grab control of the economy, and we’re pleased that our Senate colleagues agreed to adopt our amendment to focus this legislation on truly financial companies,” said Vitter.

Before the bipartisan Vitter-Pryor amendment, the language of the financial reform bill would have allowed virtually any large company engaged in broadly defined “financial activities” to be designated by the council for enhanced supervision by the Federal Reserve. That language would create an opening for the council to designate non-bank financial companies for enhanced supervision so they could be charged assessments to pay for future banking crises.

Sen. Pryor also issued a statement, in which he said:

Under this bill, we need to fix what’s broken, and leave manufacturing companies, retailers and other non-financial companies alone. They were not part of the problem and should not be subject to enhanced supervision by the Federal Reserve. Our amendment simply clarifies that banks and financial companies deserve a higher threshold of review, while companies like Home Depot, Sears, Wal-Mart or Dillards don’t.

Writing at BigGovernment.com, John Berlau at the Competitive Enterprise Institute describes the political dynamic that helped win passage of the Vitter amendment. No matter the real target, the “progressives” will attack big business, he warns, but the attacks can be warded off. (continue reading…)

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Preventing Overreach by the Consumer Financial Protection Bureau

From yesterday’s Senate debate on S. 3217, the financial regulation legislation, page S4064.

   Ms. SNOWE. During the Senate’s consideration of this legislation, I authored an amendment approved by voice vote to confirm that small business merchants and retailers would not be subject to regulation by the Consumer Financial Protection Bureau, CFPB, when they engage in credit sales. This amendment was supported by a number of key small business stakeholders, including the National Federation of Independent Business, IBNF, and the U.S. Chamber of Commerce. The amendment included a three-prong test that excludes such entities from the CFPB when they (1) only extend credit for the sale of nonfinancial goods and services; (2) retain the credit they have extended on their books; and (3) meet the relevant industry size threshold to be a small business, based on annual receipts, pursuant to the Small Business Act. It is my understanding that wholesale merchants and distributors and manufacturers would not generally need to avail themselves of that exclusion because their sales of nonfinancial goods and any related financing they may provide, are not to consumers in the first instance. Is this view correct?

   Mr. DODD. I believe point of the Senator from Maine is well taken. Wholesalers and manufacturers do not provide any products to consumers for their personal, family, or household use, let alone consumer financial products or services. Thus, wholesalers’ and manufacturers’ sales of nonfinancial goods to other businesses would be outside the bureau’s jurisdiction.

Our thanks to Sen. Snowe (R-ME) and Chairman Dodd (D-CT) for clearly establishing the legislative history on the reach of the Consumer Financial Protection Bureau. The Bureau does NOT regulate manufacturers.

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Three Different Takes on Passage of the Financial Regulation Bill

The Senate voted 59-39 Thursday evening to pass H.R. 4173, Wall Street Reform and Consumer Protection Act, which has legislatively supplanted S. 3217, Restoring American Financial Stability Act. (Because the House bill title is more achievable, the Senate title an overreach?)

The BBC this morning highlighted three representative quotes on the legislation.

President Obama: “Over the last year, the financial industry has repeatedly tried to end this reform with hordes of lobbyists and millions of dollars in ads, and when they couldn’t kill it they tried to water it down. Today, I think it’s fair to say these efforts have failed.”

Sen. Richard Shelby
(R-AL), ranking member of the Senate Banking Committee: “Judgment will not be rendered by self-congratulatory press releases, but, rather, by the marketplace. And the marketplace does not give credit for good intentions.”

Senate Majority Leader Harry Reid (D-NV): “We’re bringing accountability to Wall Street because we are accountable to the American people. The Bill we passed … has a message for both. To Wall Street, it says: no longer can you recklessly gamble away other people’s money. It says the days of ‘too big to fail’ are behind us. It says to those who game the system: the game is over.”

The White House blog promoted the President’s statement with the headline, “A Big Win Over the Lobbyists on Wall Street Reform.”

Two questions:

How do America’s leaders restore confidence in the U.S. financial system by attacking the motives and actions of the people who embody that system?

Were the disagreements over the legislation really just representative of bad faith, greed and self-interest?

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Moving Toward A Vote on the Financial Regulation Bill

Senate Majority Leader Harry Reid (D-NV) filed two cloture motions on Monday to bring to a close debate on S. 3217, the financial regulation bill, and the Dodd substitute bill, which will embrace all the changes made to the bill. The move means cloture votes on Wednesday.

Why now? So Senators can see what happens in tonight’s Democratic primaries in Pennsylvania and Arkansas. Two Senators with pending amendments will learn their political fates: Sen. Arlen Specter (D-PA) is supporting an amendment to overturn the U.S. Supreme Court’s ruling in Stoneridge v. Scientific Atlanta, inviting more securities lawsuits; Sen. Blanche Lincoln (D-AR) has pushed language to regulate derivatives.

In other speculation: Democrats may filibuster? Suppose it’s possible, maybe, probably not. Ezra Klein summarizes the issue:

Senate Democrats are threatening to filibuster financial reform unless their demands are met, report Meredith Shiner and Carrie Budoff Brown: “Sen. Byron Dorgan (D-N.D.) has said he will filibuster the bill unless the Senate votes on his amendment banning a speculative financial instrument known as a ‘naked’ credit default swap. Sen. Maria Cantwell (D-Wash.) has done the same, saying she needs a vote on her amendment separating commercial and investment banking operations.” Majority Whip Dick Durbin says he’s confident all Democrats will get on board.

And you know, it’s not as if the fait is accompli. Michael Grunwald at Time comments, “Financial Reform Inevitable? Don’t Bank on It.”

P.S. Ezra Klein’s Wonkbook news roundup at voices.WashingtonPost.com is nicely done. A new daily read.

 

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Senate Beats Back U.S. Competitiveness

The Senate yesterday rejected an amendment sponsored by Sen. Saxby Chamblis (R-GA) and Sen. Richard Shelby (R-AL) to exempt manufacturers and other business end-users from the financial reform bill’s onerous regulations on derivatives. The vote was 39-59.

The restrictions as now contained in the bill go far beyond regulations meant to control hyper-risky speculation. By restricting the legitimate, necessary use of derivatives to manufacturers and others, the legislation will sow more uncertainty in the U.S. business and investment climate. As NAM Vice President Dorothy Coleman said in a statement:

Without this exemption, the cost of managing risk for manufacturers and other companies will increase by millions — and in some cases billions — of dollars, limiting their ability to drive economic growth and job creation.

Manufacturers of all sizes use customized over-the-counter (OTC) derivatives to manage the cost of borrowing or other risks of operating their businesses, including fluctuating currency exchange, interest rates and commodity prices. These risk management tools help businesses keep operations going, invest in new technologies, build new plants and retain and expand workforces – especially in a challenging economy.

The NAM had sent a Key Vote letter to Senators explaining these points. Anti-Wall Street populism IS anti-business populism, and it’s winning the day.

Too much of the news coverage on the vote was framed in terms the proponents wanted — a blow against speculation as conscientious Democrats overcame the special interest pleas of Wall Street lackey Republicans. One report, for example, cast the dispute this way: “The U.S. Senate voted on Wednesday to reject a Republican measure that would have weakened proposed new rules for the unpoliced $615 trillion over-the-counter derivatives market.” So the legislation is “strong,” seeking to control an “unpoliced” market and the amendment sought to “weaken it.” The New York Times headline did the same, “Senate Beats Back Efforts to Ease Regulation Bill.” Thank goodness they beat it back!

Of course, what the Senate “beat back” was an important tool in risk management by major U.S. employers, businesses that do not use derivatives to speculate. Maybe the headline should have read, “Senate Beats Back Efforts to Preserve U.S. Competitiveness.”

P.S. Yay for The Hill, “Manufacturers concerned about derivatives provisions.”

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Shelby: With Impasse, Economic Harm in Financial Regulation Bill

Sen. Richard Shelby (R-AL) has issued a statement on the negotiations over the financial regulation legislation, “Shelby: Negotiations with Dodd Reach Impasse.” Excerpt:

This bill still contains a sprawling new consumer protection bureau that will find and force its way into facets of our economy that had nothing to do with the housing crisis. This massive new bureaucracy would have unchecked authority to regulate whatever it wants, whenever it wants, however it wants. I am aware of no other arm of the federal government this powerful, yet so unaccountable. In my negotiations with Chairman Dodd, I have consistently supported strengthening consumer protections. I have also advocated for a sensible and meaningful role for safety and soundness regulators in this new agency’s operations. Unfortunately, despite my demonstrated willingness to propose compromise solutions, this sensible step has proved to be a bridge too far.

Also included in this legislation are critical provisions relating to derivatives. These provisions, which Democrats developed on their own behind closed doors, were only very recently inserted into the bill. In fact, I was not provided the opportunity to share my views on a single aspect of the derivatives provision. While I firmly believe we must end the casino-like atmosphere on Wall Street, I also believe we must protect Main Street’s ability to create jobs and grow the economy. In my judgment, the provisions as currently drafted would have far-reaching and devastating effects on these businesses and our economy, increasing the cost of nearly every product we use and negatively impacting job growth.

 The bill is S. 3217, Restoring American Financial Stability Act of 2010.

 UPDATE (4:10 a.m.): Senate Republican Leader Mitch McConnell issues a statement, “Key Agreement Reached on Closing Bailout Loopholes.” It appears that a cloture vote will now pass, and debate on the legislation — with its many economy-damaging provisions — moves forward.

(Hat tip: Daniel Foster, The Corner.)

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