Senate Banking Chairman Sen. Christopher Dodd (D., Conn.) unveiled a new financial services reform bill Monday that aims to increase the government’s role in overseeing Wall Street, curb risk-taking by investment banks and broker dealers and provide consumers and investors with additional protections.

The 1,336-page bill was more aggressive and far-reaching than expected as recently as last month. Among its reforms, the bill would create a nine-member council, led by the Treasury Secretary, that would look for systemic risk-taking. It would also put the Federal Reserve in charge of overseeing most financial institutions. “We must plug the gaps and eliminate the inefficiencies that allowed this crisis to happen in the first place,” Dodd said in a press conference Monday.

The proposal would also create new rules for governing derivatives trading, and it would transfer the responsibility of tapping the president of the Federal Reserve Bank of New York from representatives of member banks to the U.S. president. The bill would also force financial institutions to increase their capital cushions.

Dodd said last week that he plans to hold a full committee markup on the bill next week.

The measure was met with mixed reviews from lawmakers and watchdog organizations. Some praised the effort to crack down on financials, while others argued the bill goes too far, saying it grants the Fed too much power or cuts too deeply into Wall Street’s pockets.

“[The banks are] concerned about cost,” says Charles Rotblut, vice president of the American Association of Individual Investors. “There is potential to restrict growth going forward and to limit earnings.” He adds that if the final version of the bill restricts the kinds of trading banks can do, then Wall Street is likely to lobby heavily against that provision.

Rotblut says the bill is unlikely to pass in its current form. “Dodd seems intent on going through with it without bipartisan support, and there are a lot of lobbyists backing Democratic senators,” he says. “More so than health care this isn’t a bipartisan issue; it goes across both party lines in terms of lobbyists and support to political campaigns.” FINRA spokesman Herb Perone declined to comment.

The bill also aims to improve investor protections by requiring insurance agents who market themselves as financial planners to register with an oversight board, which would be under the authority of the Securities and Exchange Commission. These agents would have to meet explicit competencies and standards and would have to comply with a fiduciary standard of care, meaning they would have to disclose whether as a financial planner they’re selling a product they are recommending and the commission they would receive for its sale. The SEC didn’t return calls for comment.

“The biggest impact is that consumers would finally be able to identify a trusted and ethical financial planner at this point in time,” says Marilyn Mohrman-Gillis, managing director of public policy at the Certified Financial Planner Board of Standards, Inc.

Another provision would create an independent consumer agency within the Federal Reserve that would enforce consumer protection rules at banks with assets of more than $10 billion. “The intent of what [Dodd] is trying to do is good and it could help the individual investor,” says Rotblut, “but I think one of the keys with all the regulatory changes [is that] it’s still really the responsibility of the investor and the consumer to understand what they’re getting involved in and to do all the research,” to make sure they understand a prospectus for an investment and a credit card or mortgage application.

Similar Posts:

Share