Investors fret over weakened financial reforms
Plans to toughen up supervision of the financial system are quickly being weakened in the U.S. Senate, scaring investors and shareholders who fear congressional reforms will end up toothless.
In an effort to win bipartisan support for his bill, Senate Banking Chairman Christopher Dodd is moving to water down plans to create an independent agency to regulate consumer financial products like mortgages and credit cards.
The latest proposal being considered would place the consumer division in the Federal Reserve, even though lawmakers have faulted the Fed for not aggressively cracking down on lax lending and for fueling the housing bubble by keeping interest rates at low levels for a lengthy period.
Investors and consumer advocates are not impressed.
The financial crisis was caused at least in part by irresponsible mortgage lending and inadequate oversight, said Iowa Attorney General Tom Miller.
When it comes to mortgages, credit cards and other basic financial matters, consumer protection is buried and often neglected in federal regulatory agencies that have other priorities than protecting ordinary consumers, Miller said.
In November, Dodd introduced legislation designed to avert future financial crises and better protect investors who lost billions when their companies collapsed. But Republicans immediately blasted the draft bill and Dodd started anew with lawmakers from both parties.
Now reforms such as higher standards for broker-dealers, regulation of the $450 trillion over-the-counter derivatives market and rules to make corporate boards more accountable are in danger of being diluted.
The committee may scrap a measure that would have forced brokers to adhere to a higher fiduciary standard if they provide financial advice to clients. Instead, a study of investment adviser regulation may be called for.
Advisers to private equity funds and venture capital funds may escape federal oversight. In addition, there is disagreement among Republicans and Democrats over whether to give shareholders more say on corporate executive pay and greater clout in electing corporate boards.
We have many concerns about the direction this bill may take, and the stakes are huge for investors, both large and small, said Ann Yerger, executive director of the Council of Institutional Investors, which represents investors holding more than $3 trillion in assets.
Investors will lose in the end if Congress fails to close regulatory gaps... and neglects to address the governance failures that contributed to this crisis, she said.
One of the Obama administration's keystones in overhauling the country's financial regulation is the Consumer Financial Protection Agency.
The House of Representatives passed a bill in December to create an independent agency that has the authority to write its own rules and enforce them.
But Senate Republicans and some Democrats contend it would be unwise to separate bank regulation from consumer protection.
U.S. businesses, which fear they will no longer be able to create and offer lucrative financial products, have poured all of their resources into killing the independent consumer agency.
What's at stake is creating the possibility of another financial crisis, said Heather Booth, the director of consumer lobbying group Americans for Financial Reform.
There is potential for serious problems for consumers and problems for the overall economy.
(Editing by Andrea Ricci)
© Copyright Thomson Reuters 2024. All rights reserved.