Michelle Harner
Deadlines can compel action. That certainly appears to be the case with financial reform legislation and this weekend’s G8 and G20 summits. President Obama wanted to walk into the summits with financial reform in hand, and he got exactly that (see the President's comments here). Although the bill must still receive final approval from the House and the Senate, the compromise reached by the conference committee early this morning suggests that the Democrats may be able to line up the necessary votes as early as next week. (For a summary of the bill, see here.)
I have not yet seen the language of the conference committee’s report, but it appears that last minute compromises within the Democratic party got the job done. (Indeed, no Republican member of the House and Senate panels voted in favor of the report (see here).) For example, Senator Lincoln’s proposal to force banks to spin off all derivatives operations was softened, allowing banks to maintain certain trading operations for derivatives with lower risk profiles such as “interest-rate swaps, foreign-exchange swaps, and gold and silver swaps” (see here).
The compromise facilitating the conference committee’s report also included some punts. For example, the report does not endorse creating the Credit Reporting Agency Board. (For a discussion of the CRAB, see my prior post here.) Rather, it directs the SEC to study the matter to determine whether such an oversight board is warranted (see here). Likewise, the report gives the SEC discretion to raise standards governing broker dealers (after further study) and to grant shareholders proxy access with respect to director nominations. (For an explanation of different approaches to governance issues in the reform legislation, see here.)
Even with the compromises and punts, the Dodd-Frank Act (the name given to the financial reform bill coming out of the conference committee) is the most significant overhaul of financial regulation since the Great Depression. It undoubtedly is going to shake up the financial sector, and firms will be spending millions of dollar to comply with the new standards. What remains uncertain, however, is whether the new regulations will in fact address the systemic risk and human factors that contributed to the severity of the recent recession. I look forward to addressing some of those issues in future posts.
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