Saturday, July 3, 2010

Wall Street Reforms and Consumer Protections Act 2010

There was an eruption of financial crisis in 2007-08, which originated in the USA and spread to other advanced economies. The financial crisis has seriously affected the growth prospects of emerging market and developing economies, also resulting in recession or slows down in growth in almost all economies of the world. Many of them are still struggling to roll back on tracks, despite the efforts of the central banks and governments of these countries. US had faced the worst financial crisis since the Great Depression of 1930. Millions had lost their jobs, businesses had failed, housing prices had dropped, and savings were wiped out.
The current economic crisis has eroded public and investor confidence in the governance. American corporations and the government had to take swift action to restore the public trust and to restore responsibility and accountability in their financial system to give them confidence that there is a system in place that works for and protects them.

With the foregoing premises in mind, the Obama government took various initiatives and recently, U.S. House and Senate lawmakers released the final text of sweeping financial regulatory legislation which has been dubbed the “Dodd-Frank Wall Street Reform and Consumer Protection Act” after the chief negotiators for each chamber, Senator Christopher Dodd and Rep. Barney Frank.
The Wall Street Reform and Consumer Protection Act include the following major provisions:

Consumer Protections: Creates the Consumer Financial Protection Agency (CFPA), a new, independent federal agency solely devoted to protecting Americans from unfair and abusive financial products and services.

Financial Stability Council: Creates an inter-agency oversight council that will identify and regulate financial firms that are so large, interconnected, or risky that their collapse would put the entire financial system at risk. These systemically risky firms will be subject to heightened oversight, standards, and regulation.

Dissolution Authority and Ending “Too Big to Fail”: Establishes an orderly process for dismantling large, failing financial institutions like AIG or Lehman Brothers in a way that ends bailouts, protects taxpayers, and prevents contagion to the rest of the financial system.

Executive Compensation: Gives shareholders a “say on pay” – an advisory vote on pay practices including executive compensation and golden parachutes. It also enables regulators to ban inappropriate or imprudently risky compensation practices, and it requires financial firms to disclose any compensation structures that include incentive-based elements.

Investor Protections: Strengthens the SEC’s powers so that it can better protect investors and regulate the nation’s securities markets. It responds to the failures to detect the Madoff and Stanford Financial frauds by ordering a study of the entire securities industry that will identify needed reforms and force the SEC and other entities to further improve investor protection.

Reward Tipsters and Protect Whistleblowers: A new Investor Protection Fund will create incentives to identify wrongdoing in the securities markets and reward individuals whose information leads to successful enforcement actions. This fund will also pay for educational initiatives designed to help investors protect themselves against securities fraud. Whistleblowers will be better protected from retaliation as well.

Regulation of Derivatives: Regulates, for the first time ever, the over-the-counter (OTC) derivatives marketplace. Under the bill, all standardized swap transactions between dealers and “major swap participants” would have to be cleared and traded on an exchange or electronic platform. The bill defines a major swap participant as anyone that maintains a substantial net position in swaps, exclusive of hedging for commercial risk, or whose positions create such significant exposure to others that it requires monitoring.

Mortgage Reform and Anti-Predatory Lending: Would incorporate the tough mortgage reform and anti-predatory lending bill the House passed earlier this year. The legislation outlaws many of the egregious industry practices that marked the subprime lending boom, and it would ensure that mortgage lenders make loans that benefit the consumer. It would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.

Reform of Credit Rating Agencies: Addresses the role that credit rating agencies played in the economic crisis, and takes strong steps to reduce conflicts of interest, reduce market reliance on credit rating agencies, and impose a liability standard on the agencies.

Hedge Fund, Private Equity and Private Pools of Capital Registration: Fills a regulatory hole that allows hedge funds and their advisors to escape any and all regulation. This bill requires almost all advisers to private pools of capital to register with the SEC, and they will be subject to systemic risk regulation by the Financial Stability regulator.

Office of Insurance: Creates a Federal Insurance Office that will monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis and undermine the entire financial system."

"After losing eight million jobs and trillions of dollars in wealth, the American people are finally getting the Wall Street reform they have demanded from Washington," the Congressman Tim Bishop voted the bill and said. "Reforming financial services is a critical step in our ongoing effort to create jobs and build a sound economy that rewards healthy risk-taking and long-term growth."


The Act was passed by a bipartisan vote of 237 to 192. The legislation is now under consideration in the Senate and it is hoped that the stage is all set for the Senate to clear it.


Click Here for resource to the Wall Street Reforms and Consumer Protections Act: http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/Financial_Regulatory_Reform062910.html
Keywords: Financial Reforms, Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street, End Too Big to Fail, Prevent Another Financial Crisis
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1 comment:

Unknown said...

President Obama just signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Act contains a number of governance-related provisions including protection to whistle blowers, that will affect all U.S. public companies—and their boards, and is likely to increase the influence of shareholders in corporate governance matters almost immediately.
P R Chandna