How Should the Financial Industry Be Regulated? Pension/Hedge Funds, Investment Banks (2009)

As of May 2010, both the House and Senate bills had been passed, but the differences between the bills were to be worked out in United States congressional conference committee. Differences which must be resolved include:[8] whether the new consumer protection agency would be independent (Senate) or part of the Federal Reserve; whether to require banks to issue credit derivatives in separately capitalized affiliates (Senate); how exactly the Federal Deposit Insurance Corporation (FDIC) will wind down or bail out large institutions which fail; the circumstances under which large institutions could be broken up; a 15 to 1 leverage limit in the House bill; the terms of a Fed audit (continuous as in the House bill or one-time as in the Senate bill); both bills include the Volcker rule which prohibits proprietary trading by bank holding companies, but both have a caveat which allow for regulators to overrule the rule; both bills propose to regulate credit rating agencies, but the Senate's bill is much stronger.

H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009 by Rep. Barney Frank (D-MA), passed by the House of Representatives in December 2009,[9] and awaiting action by the Senate as of April 2010.

S.3217 was introduced by Senate Banking Committee chairman Chris Dodd (D-CT) on April 15, 2010.[12] Dodd's bill included a $50 billion liquidation fund which drew criticism as a continuing bailout, which he was pressured to remove by Republicans and the Obama administration.[13] The Senate bill passed on May 20, 2010.

The "Volcker Rule" was proposed by President Barack Obama based on advice by Paul Volcker, and a draft of the proposed legislation was prepared by the U.S. Treasury Department. It limited any one bank from holding more than 10% of FDIC-insured deposits, and prohibited any bank with a division holding such deposits from using its own capital to make speculative investments. The Volcker rule faced heavy resistance in the Senate and was introduced as part of the subsequent Dodd bill only in a limited form.

Chaired by the United States Secretary of the Treasury, a new multi-authority oversight body called the Financial Stability Oversight Council of regulators will be established. The council will consist of nine members including regulators from the Federal Reserve System, U.S. Securities and Exchange Commission, Federal Housing Finance Agency, and many other agencies. The main purpose of the council is to identify risk in the Financial system. Also, the council will look at the interconnectivity of the highly leveraged financial firms and can ask companies to divest holdings if their structure poses a great threat to the Financial system. The council will have a solid control on the operations of the leveraged firms and also help in increasing the transparency.

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