Banking Committee Advances Financial Reform Legislation with Only Minor Changes

Release Date: 
March 24, 2010

Demos Looks Ahead to Critical Floor Debate

Washington — On Monday, the Senate Banking Committee approved legislation to overhaul the nation's financial services sector on a party-line vote in an unusually brief session. Forgoing what was expected to be a drawn-out and contentious debate over hundreds of amendments, the panel advanced the Restoring American Financial Stability Act of 2010 with all 13 Committee Democrats — and none of its 10 Republicans — in support, setting the stage for a heated debate before the full Senate.

"We are pleased to see this critical measure of reform advancing through the legislative process," said Demos Washington Director Heather C. McGhee. "Nearly two years after excesses on Wall Street brought the economy to the brink of collapse, with federal regulators either unable or unwilling to step in until American homeowners and investors had already lost trillions of dollars, Congress has yet to write new rules of the road.

"The real work still lies ahead. The Senate must create a new consumer protection agency with the authority to shield everyday Americans from unfair terms and conditions at banks and non-bank institutions alike, not subject to the veto of the bank regulators who have historically undermined consumer protection. And it must bring the era of risky, unregulated finance to an end through tough limits on the size and activities of the biggest firms.

"We look forward to working with every member of the United States Senate to restore confidence and stability to financial markets for investors and consumers alike."

Highlights of new provisions incorporated into Chairman Dodd's Manager's Amendment since the draft was released last Monday include:

CREDIT RATING AGENCIES: Amendments from Senator Mark Bennet (D-CO) strengthen corporate governance and anti-fraud provisions for the credit rating agencies responsible for rating complex securities. However, the bill still does not reform the "issuer pays" model that was at the heart of the ratings failures leading to the financial crisis. For more information on credit ratings agency reform.

PRIVATE STUDENT LOANS: An amendment from Sherrod Brown (D-OH) creates a special ombudsman to monitor private student loans. Today, private student loans are aggressively marketed and virtually unregulated. The consumer financial protection bureau proposed in the bill would have rule-writing, but not enforcement authority, over non-bank private student lenders such as Sallie Mae. For more information on private student loans in financial reform, see: http://bit.ly/a2iSeW.

TOO BIG TO FAIL: Amendments from Sen. Shelby (R-AL) and Sen. Warner (D-VA) to weaken the "Volcker Rule" provisions in the bill were not included. The bill currently requires the Federal Reserve to issue guidelines against proprietary trading and hedge fund ownership by banks that receive government protection through FDIC deposit insurance and access to the Fed discount lending window, as well as new liabilities-based industry concentration limits. However, the bill does not include a Glass-Steagall type separation of commercial and investment banking. For more information on true systemic risk reform, see: http://bit.ly/duA2sv

INEQUALITY: An amendment from Sen. Robert Menendez (D-NJ) would require firms to disclose the executive-to-average-worker pay ratio in their compensation reports.

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