A closer look at Frank’s changes to the U.S. consumer agency bill
September 29th, 2009 | 
Author: Rep. Barney Frank (D., Mass.), has introduced a revised U.S. consumer agency bill that is designed to address criticism that certain provisions of the bill were too vague, while others were too restrictive. The changes:
- Eliminated the requirement that financial service providers must offer a “plain-vanilla” or “standard” products like low interest, low fee credit cards and 30 year mortgages.
- Clarified who the Consumer Financial Protection Agency (CFPA) would regulate:
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Changed the sources of funding to include:
- Extend the registration, reporting and examination requirements to “covered persons” that are non-depository.
- Eliminated the requirement that consumer communications need to be “reasonable.”
- Restructure the agency to include a director who will be advised by a Consumer Financial Protection Oversight Board, which will include federal banking regulators and other agencies.
- Mandated the coordination of examinations between the CFPA and state and federal banking regulators and clear procedures for resolving disagreements between regulators.
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Judge’s Rejection of SEC and Bank of America’s Settlement Raises Interesting Questions
Jed Rakoff, a U.S. District Judge in New York, has rejected the proposed $33 million settlement between the SEC and Bank of America that was supposed to resolve the SEC’s claim that the bank deceived shareholders in a proxy statement concerning bonuses to be paid to Merrill Lynch executives. The proxy statement said that Merrill had agreed not to pay bonuses before the Merrill-Bank of America acquisition closed without the bank’s consent. The SEC claims that bank had actually approved payment of up to $5.8 million in bonuses.
Judges Take Action While Regulators and Lawmakers Debate
There is an interesting article at Bloomberg.com that discusses how judges have taken the lead in punishing Wall Street for actions that have contributed to the first global recession since WWII, while regulators and lawmakers argue and discuss regulatory reforms designed to prevent future crises. I view this as a positive development as a history of light sentences in “country club” prisons did little to dissuade illegal activity that can make millions for financial executives. This can provide significant protection for consumers, providing that judges do not take it too far. It is important to ensure that ‘the punishment fits the crime.’
The kind of financial regulatory reform we really need- how do we best achieve it?
One of my interests that I study in my spare time is the history of Wall Street. Thinking about the events of the last few years in terms of the history of Wall Street disasters, I observed an oft repeated pattern- the SEC cites financial services firms for security law violations (usually in the aftermath of the collapse of the firms and/or financial markets), and it then assesses a fine that represents a tiny fraction of the profits earned from the illegal activity without requiring the firm to admit or deny guilt. Given this history, it is apparent that violating securities regulations is a relatively low risk and highly profitable proposition. In an industry that makes business decisions based on the risk/reward ratios, is it any wonder that regulatory violations occur on a fairly regular basis?
Does the average taxpayer really understand what it means to be a shareholder?
The U.S. Treasury’s TARP program has essentially made the average taxpayer a shareholder of a number of the country’s largest corporations including General Motors, Bank of America, and Citigroup. With all of the public outcry concerning pay at Wall Street firms, particularly aimed at the receivers of TARP funds, it makes me wonder if the average taxpayer understands what’s at stake here. Recruiting top talent has always been an extremely competitive aspect of doing business in financial services, and it is a large determinant of how profitable a Wall Street firm will be. It has long been a well accepted axiom on the Street that a financial firm’s most valuable assets go up and down its elevators every day.
What Should Be Done About High Frequency Trading?
A recent New York Times article has led to a good deal of discussion about High Frequency Trading (HFT). According to the Times:
Court Ruling Underscores Need For National Consumer Protection
On June 29, the Supreme Court ruled 5 to 4 that states have the right to charge nationally chartered banks for violation of state consumer protection laws. The ruling in Cuomo vs. Clearing House Association denied states the right to unilaterally demand bank records the way a supervising regulator can, but they can pursue legal enforcement by suing national banks in court.
CFTC Considering Limiting Commodities Speculation
PWC 2009 Wealth Management Survey Shows How Crisis is Changing Industry
The Pricewaterhouse Coopers Global Private Banking and Wealth Management Survey 2009 has been released and provides some interesting insight into how the current financial crisis has impacted the wealth management industry, and what further changes lie ahead. Below are highlights of the survey:
Proposed Regulatory Reform- Wall Street Needs to Respond Carefully
Not surprisingly, parts if the regulatory reform proposal released last week by the Obama Administration have proven to be rather controversial. The plan has attracting criticism from both lawmakers and members of the financial services industry, and praise from consumer advocacy groups. Can the plan prevent future financial crises without overburdening financial institutions with unnecessary and redundant oversight? I believe it has the potential to succeed, but the devil will be in the details that have yet to be determined. Over the coming weeks and months, there will be a great deal of debate, lobbying, and negotiations that will determine what the financial regulatory structure will be going forward.
Administration Proposal to Address Severely Damaged ABS Market
The Obama Administration revealed a proposal yesterday that is designed to safeguard the asset-backed securities (ABS) market that played such a significant role in causing our current economic crisis. The purposes of the reforms are to encourage responsible lending and lower the risks of ABSs by forcing the sellers to share in the risk of the securities and provide more information to investors.
Committee Report Provides Insight as to Likely Direction of Regulatory Reform
The Committee on Capital Markets Regulation (the Committee), an independent research organization comprised of twenty five leaders from the investor community, business, law, accounting and academia, issued a report on May 26 entitled “The Global Financial Crisis: A Plan for Regulatory Reform.” This report discusses the think tank’s recommendations for U.S. financial regulatory reform that are broadly similar to those proposed by a number of national and international financial and economic committees, regulators, lawmakers, and organizations. Given the consistency of the recommendations here with similar proposals within the industry and lawmakers, it seems likely that this provides broad-brush insight as to the direction of regulatory reform that the industry is likely to experience, though I would be shocked if all of the recommendations were adopted.
What’s With All This Economic Optimism?
A steadily advancing stock market, improving economic indicators, positive statements from the Fed regarding the economy, financial services firms raising capital in the markets, and increased consumer confidence- all of this flies in the face of the gloom and doom scenarios that most economic and financial pundits were espousing earlier this year. How is this possible? Since the stock market is widely known to be a leading economic indicator, the strong rebound in equity indexes is a critical factor in this newfound optimism. The critical question, at this point, is whether this is a true bull market, or merely a bear market rally. In order to answer this question, I believe that we need to examine what is driving the market advances that have surprised just about everyone on the Street.
B of A Moves to Make Mortgage Origination More Consumer Friendly- Will Others Follow?
When it comes to mortgage lending practices, it appears that at least one bank has learned its lesson. After integrating Countrywide Home Loans and doing away with the name, Bank of America has taken steps to help potential home buyers with the mortgage process. According to The New York Times:
Expect Plenty of Fireworks as Washington Tackles the ‘Too-Big-To-Fail’ Issue
There will be plenty of activity for those of us in the financial services industry to keep an eye on as Washington grapples with the prospect of granting the government authority to take over, and possibly close, large financial institutions. The Senate Banking Committee will hold a public hearing Wednesday on that very subject, and The House Financial Services Committee is likely to do the same as early as next week.
