On May 20, the Senate approved a bill that, if enacted, would represent the most sweeping regulatory overhaul since the Great Depression. Among other things, the
Senate bill would:
- Establish a new council of "systemic" risk regulators to monitor growing risks in the financial system.
- Empower the
Federal Reserve to supervise the largest, most complex financial companies to ensure that the government understands the risks and complexities of firms that could pose a systemic risk.
- Give the
Securities Exchange Commission the authority to grant shareholders proxy access to nominate directors.
- Establish a new self-regulating organization for credit rating agencies designed to eliminate conflicts of interest in the issuer-pay model. The SEC would appoint members of the regulatory body which would assign rating agencies to provide initial credit ratings of financial instruments.
The Senate bill differs significantly in some ways from the
House version of the Wall Street reform legislation. While both bills contain provisions calling for the creation of a new consumer protection agency, in the House version the agency would be substantially independent, while the Senate version would put the agency under the umbrella of the Federal Reserve, an institution not famous for its concern for consumer rights.
With respect to regulating the massive over-the-counter derivatives market, however, it is the Senate bill that calls for stricter rules-perhaps because it passed in the wake of the recent Goldman Sachs imbroglio. Both bills give regulators new powers to oversee the derivatives market and to force most derivative contracts to be traded through third party "clearing houses." However, the Senate bill would make it more difficult for companies to seek exemption from the new rules.
Investors and taxpayers alike should stay tuned to what happens in the process of reconciling the two bills: the results may shape the U.S. markets for generations to come.