Pelosi to Wall Street: "Party's Over". House passes financial overhaul.

The U.S. House of Representatives today passed the Wall Street Reform and Consumer Protection Act, 223-202. The House tightened rules for derivatives and created powers to break up large financial firms that threaten the economy, despite opposition from Wall Street and Republicans. Also included was the creation of a Consumer Financial Protection Agency and stronger oversight of hedge funds. The bill also ends a ban that shielded the Federal Reserve from audits of its monetary policy decisions. The House failed to add language for mortgage "cram-downs". Passage of the House bill moves one step closer to achieving the White House objectives for financial reform. The focus now shifts to the Senate, where lawmakers lack a schedule for action on a bill.

House Could Vote Friday on Financial Overhaul

The bigger they come, they harder they.....get hit? The giant banks could be the biggest losers in Congress' efforts to overhaul financial regulation. A populist groundswell in the majority Democrat House of Representatives has led to the addition of amendments that are unfriendly to the largest financial institutions. The bill seems to be going way beyond what the White House envisioned when it sent its proposal to Congress last June. The House bill contains much of what the White Hose wanted: powers to take over/break up large companies, new consumer protection rules, tougher regulation of derivatives, executive pay limits. The Senate bill differs considerably, so real change may not be imminent.

Some of the highlights aimed at policing the Big Banks:

• Regulators would be able to block healthy banks from certain practices or mergers, and even order a bank to shrink if it posed systemic risk.
• Financial companies with more than $50B of assets wold have to pay into a $150B fund to deal with future collapses of large financial institutions.
• The government would be able to order certain large banks to split off their commercial bank from their investment bank if regulators are concerned.
• Large banks would have to submit to consumer compliance exams from a new Federal Agency, while many small banks would be exempt.
  

More regulation on tap for Munis?

Federal laws that exempt much of the $2.8 trillion municipal bond market from filing quarterly financial statements and U.S. Securities and Exchange Commission regulation should be repealed, Commissioner Elisse Walter said.

Walter is the third commissioner this year to call for municipal bond issuers to follow the same rules as sellers of corporate securities. SEC Chairman Mary Schapiro has hinted that the commission would seek expanded authority over the market sometime in 2010, and Commissioner Luis Aguilar called for greater oversight. All three have been appointed since 2008.

The Government Finance Officers Association, which represents state and local municipal officials, “strongly opposes any actions by the SEC or Congress” to give the commission “direct authority over municipal bond issuers or to directly or indirectly impose new disclosure or accounting standards,” according to a comment letter filed with the SEC in September.

Committee Approves Private Advisor Registration Bill

Could it be that the long awaited first step toward the anticipated increase in demand for compliance professionals has been taken? Yesterday, the House Financial Services Committee passed H.R. 3818, the Private Fund Investment Advisers Registration Act, introduced by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. The Committee passed H.R. 3818 with extensive bipartisan support by a vote of 67-1. Today, the Committee is expected to vote on Chairman Kanjorski’s H.R. 3817, the Investor Protection Act and H.R. 3890, the Accountability and Transparency in Rating Agencies Act.

But the bill fell short of a White House proposal to oversee private pools of capital. The committee exempted venture capital funds and funds with less than $150 million in assets.

Securities and Exchange Commission Chairman Mary Schapiro warned broadly at a Wall Street conference on Tuesday against too many exemptions, saying she would work with Congress to avoid creating new carve-outs that "could come back to haunt investors in later years."

Stay tuned to GlobalRiskJobs and GlobalComplianceJobs for opportunities as the regulatory story continues to unfold.

Bernanke to Congress: Now's the Time

Fed Chairman Ben Bernanke urged Congress on Friday to enact legislation overhauling the nations' financial regulatory system to prevent a repeat of the banking and credit turmoil that created the financial crisis.

“With the financial turmoil abating, now is the time for policymakers to take action to reduce the probability and severity of any future crises,” Mr. Bernanke said in remarks to a Fed conference in Chatham, Mass.

The Fed has recently been moving to strengthen oversight of banks, and intensify consumer protections. On Thursday it announced a sweeping proposal to police banks’ pay policies to make sure they do not encourage top executives and other employees to take outsize risks.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to make, Mr. Bernanke said.

At the top of Mr. Bernanke’s list: Congress must set up a mechanism similar to the FDIC to safely wind down big financial firms whose failure could endanger the entire financial system.

And, the costs for such a mechanism should be paid for through an assessment on the financial industry, not by taxpayers, the Fed chief said.

Moreover, Congress needs to set up better systems for regulators to monitor risks lurking in the financial system, he said.

The Obama administration has proposed such action as part of its revamp of financial rules. Its plan would expand the Fed’s powers over big financial institutions but reduce it over consumers. Congress, however, is leery of expanding the Fed’s reach because it and other regulators failed to crack down on problems that led to the crisis.

A House panel on Thursday approved a piece of the Obama plan, the creation of a federal agency devoted to protecting consumers from predatory lending, abusive overdraft fees and unfair rate increases.

Stay current on career opportunities in the ever-changing risk and compliance world by visiting GlobalRiskJobs and GlobalComplianceJobs.

Geithner Running Point on Reform

Although healthcare reform seemed to be pushing ahead of financial reform in the political dialogue race, President Obama's Lehman Anniversary speech on Wall Street last week seems to have re-energized the movement somewhat. While GlobalRiskJobs and Risk Talent Associates are definitely seeing an increase in activity on the financial risk and compliance front, we definitely expected more to see more robust signs of recovery on the hiring front at this point in the year. One of the preconditions to a wholesale shift has always been a more intense regulatory/reporting environment, which we still believe will come, but things have been slow to develop largely because of the traffic jam in Washington. So, with Geithner's focus now moving from crisis manager to running the point on financial reform, we will see where it takes us. Geithner seems to have simplified the message, focusing on three key points that legislators should consider when enacting financial reform: 1) offer “substantial” new protections to consumers and investors, 2) make the financial system less vulnerable to crisis, and 3) protect taxpayers from having to bail out future crises.

Are some of the regulators past the point of fixing? Bloomberg commentator Susan Antilla wonders as much about the SEC in a recent piece. She looks at Judge Rakoff's beat-down of the SEC-Bank of America settlement as just the latest example of a regulator that needs an overhaul. Meanwhile, the SEC is seeking more power to oversee derivatives markets.

GlobalRiskBlog favorite Andy Kessler weighs in on bank pay controls in today's Wall Street Journal. Kessler argues that it was excessive leverage, rather than excessive risk that drove the financial system to the brink of disaster.

As the G-20 convenes in Pittsburgh, U.S. and European leaders remain divided on how much capital the world's largest financial institutions should keep on hand to meet unexpected losses. Most agree that a major lesson of the Crisis is that higher capital requirements are essential, and G-20 leaders hope to have an agreement on new standards by the end of 2010, with implementation by the end of 2012.

Congress has turned its attention to the Rating Agencies. New allegations by a recently departed Moody's analyst named Eric Kolchinsky have added fuel to the debate over the role and influence of credit ratings and whether recent reforms are sufficient to prevent a repeat of past missteps.

The FDIC is being criticized for its handling of many of the recent bank failures. A recent report about the failure of Colorado-based New Frontier Bank criticizes the agency and other regulators for not being aggressive enough in handling the brewing financial crisis.

And finally, the controversial filmmaker Michael Moore is back in the headlines with "Capitalism: A Love Story", a scathing look at the financial system through the lens of the Crisis.

Risk is Back! Sort of.

The New York Times has a special DealBook section today examining the current state of Wall Street one year after Lehman. In Sorkin's cover story, "Taking a Chance on Risk Again", he assesses the state of risk taking as the pendulum swings from refusal to take risk back toward the balanced middle. Where is the "critical point" on the risk spectrum? The usual discussion of VaR and its shortcomings takes place as Sorkin tries to capture the state of the market...Zachary Kouwe looks at the hedge fund fee model as the old standard of "2-and-20" is questioned...Risk is back in the bond market. But the robust high yield market is raising concerns...Harvard Professor William George just published "Seven Lessons for Leading in Crisis", a look at how the banking chieftains responded to the financial meltdown...The Deal Professor has an idea. You want to reduce hedge fund risk? Open them up to Main Street...And finally, it pleases GlobalRiskJobs to know that Gordon Gekko is back! Yes, it's true: Oliver Stone is remaking Wall $treet (1987) to focus on 2001-2008. Thankfully, Michael Douglas will reprise the Gekko role (post-prison), and the cast includes Josh Brolin Susan Sarandon, Frank Langella and Shia LaBeouf. Nouriel Roubini and Jim Chanos are technical advisors and Jim Cramer makes a cameo of course. Can't wait for that one.