Alert December 21, 2009

House Passes Financial Regulatory Reform

On December 11, 2009, the House of Representatives passed H.R. 4173, a bill designed to reform the current financial regulatory system with the goal of preventing future Wall Street failures like the ones that precipitated our current recession.  The vote was 223 to 202, with no Republicans voting aye.  The bill is broad in scope, seeking to regulate a wide range of financial entities.

The centerpiece of the bill is the formation of a new federal watchdog agency called the Financial Services Oversight Council, which will take over the regulatory functions of many existing entities, including banking regulators.  The Council will be comprised of the Secretary of the Treasury, the Chairman of the Federal Reserve, and the heads of certain other regulatory agencies.

As first introduced, H.R. 4173 sought to regulate the derivatives market without restriction. As passed, the bill retains the power to regulate derivatives, but includes some exceptions for smaller companies and certain types of securities.  The bill also provides shareholders the power to vote on executive compensation.

The Senate is expected to consider its own version of regulatory reform in early 2010.