Alert December 08, 2009

House Combines Regulatory Reform Bills Into the Wall Street Reform and Consumer Protection Act of 2009

The various regulatory reform bills passed by the House Financial Services Committee have been combined into a single 1,279 page omnibus regulatory reform bill, the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) (the “Bill”).  The Bill is expected to be introduced to the floor of the House on December 9, 2009.  It is anticipated that the Bill will require three full days of debate, and many amendments to the Bill have already been proposed, including a 200 page manager’s amendment by House Financial Services Committee Chairman Barney Frank relating to mortgage lending reform.  The Bill combines the language of the following bills:

  • Financial Stability Improvement Act of 2009 (H.R. 3996), (for more on H.R. 3996 please see the November 3, 2009 Alert and the November 24, 2009 Alert);
  • Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269);
  • Over-the-Counter Derivatives Markets Act of 2009 (H.R. 3795), (for more on H.R. 3795 please see the November 3, 2009 Alert);
  • Consumer Financial Protection Agency Act of 2009 (H.R. 3126), (for more on H.R. 3126 please see the October 20, 2009 Alert and the October 27, 2009 Alert);
  • Private Fund Investment Advisers Registration Act of 2009 (H.R. 3818), (for more on H.R. 3818 please see the October 20, 2009 Alert);
  • Accountability and Transparency in Rating Agencies Act of 2009 (H.R. 3890);
  • Investor Protection Act of 2009 (H.R. 3817); and
  • Federal Insurance Office Act of 2009 (H.R. 2609).

In addition, the Bill includes a new provision that would amend the Securities Act of 1933 to require securitizers of asset-backed securities to retain an economic interest in the underlying debt instruments.  Lawmakers in Europe are also seeking similar regulatory reforms for asset-backed securitizations in accordance with the agreement reached at the September 2009 summit of the Group of 20 nations that such reform is necessary to create incentives for minimizing the risk of default in the underlying debt.

As discussed in the November 3, 2009 Alert and the November 24, 2009 Alert, the Bill provides for the resolution of systemically significant financial companies, which in the past may have been considered “too big to fail.”  Amendments to the Financial Stability Improvement Act of 2009 approved by the House Financial Services Committee on November 18, 2009 and November 19, 2009 severely curtailed the FDIC’s power to help a failing financial company from becoming insolvent.  The amendments removed any reference to a “qualified receiver” and provide that the FDIC could only provide industry-wide debt guarantees — not guarantees for the benefit of an individual company.  Though the FDIC could still lend to a failing financial company, it could only do so in order to wind it down.

Chairman Frank and House Energy and Commerce Committee Chairman Henry Waxman have also reached an agreement regarding the governance of the proposed Consumer Financial Protection Agency (the “CFPA”).  The House Financial Services Committee and the House Energy and Commerce Committee had each passed a version of the Consumer Financial Protection Agency Act of 2009 with differing governance structures for the CFPA.  The Chairmen agreed to resolve the differences by initially appointing a single director in charge of the CFPA for a temporary period and then establish a commission to run the agency, much like other federal regulatory agencies.

The Alert will continue its coverage of these and other issues concerning financial regulatory reform in future issues.