FACTBOX-Some financial reforms missing from U.S. bills

WASHINGTON, April 14 (BestGrowthStock) – Financial regulation
reform has slowly narrowed in the U.S. Congress, where some
ambitious proposals have slipped from view.

Mainly due to insurmountable opposition from Republicans,
bank lobbyists and regulatory agencies protecting their turf,
some changes that looked achievable a year ago at the height of
the financial crisis are no longer being discussed.

The bill about to be sent to the Senate floor for debate
and a final vote leaves out at least one bold idea — creating
a single agency to supervise banks.

Here are some reform proposals that are being left behind:


The Securities and Exchange Commission and the Commodity
Futures Trading Commission regulate markets so closely linked
that critics have long argued the two agencies should be one.

When the Obama administration took over in 2009 and the
crisis was at its peak, a CFTC-SEC merger looked possible. But
as Congress began hammering out a politically realistic set of
post-crisis reforms, the merger slipped from view.

Neither agency wanted it since it would threaten jobs and
turf. Financial services industry lobbyists were divided, with
some favoring a merger and others against it.

In the end, legislators said, in a perfect world, the two
agencies would be combined, but that just isn’t Washington.


The boldest reform idea offered last year by Senate Banking
Committee Chairman Christopher Dodd was to consolidate into one
super-agency the bank regulation duties now scattered across
several federal bureaucracies.

That idea is now dead, after months of lobbying against it
by banks and the agencies that would have been superseded,
including the Federal Reserve, the Comptroller of the Currency,
and the Federal Deposit Insurance Corp.

The House bill never contemplated a plan as brash as
Dodd’s. He wanted to create a Financial Institutions Regulatory
Administration (FIRA) to supervise all banks and put an end to
today’s patchwork system stitched together over decades.

But the more modest bill now in the Senate instead puts the
Fed in charge of bank holding companies with more than $50
billion in assets, shifts many smaller banks to FDIC and leaves
that agency in charge of other state banks.

The Comptroller of the Currency, under the bill, would
continue to supervise national banks with assets under $50
billion. And the OCC would absorb the Office of Thrift
Supervision, which would close — a small step toward
streamlining, but far short of Dodd’s FIRA plan.


Under present law, bankruptcy courts may reduce many forms
of debt for struggling borrowers — including for a boat, car,
vacation home or family farm — but not a primary residence.

In a proposal backed by homeowner activists and many
Democrats, bankruptcy law would be rewritten to allow judges to
change the terms of mortgages for distressed borrowers in
bankruptcy court. Known as mortgage “cramdown,” the idea is
opposed by the banking industry (Read more about the banking industry recovery.) and Republicans.

The House approved a “cramdown” measure in March 2009 over
the objections of Republicans, but it died in the Senate.

Cramdown could help stem U.S. home foreclosures, its
advocates say. But opponents say it would raise costs for
everyone and divert capital from the mortgage debt market.


Tighter regulation of credit rating agencies — such as
Moody’s Corp (MCO.N: ), Standard & Poor’s (MHP.N: ) and Fitch
Ratings (LBCP.PA: ) — is proposed by both a House financial
reform bill approved in December and the Senate bill.

But neither calls for basic change in the so-called “issuer
pays” business model that critics say presents credit rating
agencies with a glaring conflict of interest.

Most of the agencies’ revenue comes from issuers of bonds
and other debt that the agencies evaluate and rate. Critics say
that can mean ratings are colored by business needs.

Congressional aides said lawmakers could not find a way to
change the business model without destroying the industry.

Rating agencies were widely blamed for not spotting
subprime mortgage problems ahead of the crisis.


The two giants of U.S. mortgage finance — Fannie Mae
(FNM.N: ) and Freddie Mac (FRE.N: ) — need a major overhaul. That
much both political parties in Congress can agree on.

But the consensus pretty much ends there.

The Obama administration has said it will sketch out a
reform plan for the two agencies soon and House Financial
Services Committee Chairman Barney Frank is beginning new
discussions on the issue among his panel’s members.

But fixing Fannie and Freddie is such a contentious problem
that Democrats shelved it for the time being, excluding it from
both the House and Senate financial regulation reform bills.

Fannie and Freddie together own or guarantee half of all
U.S. mortgages. Both were seized by the U.S. government and put
into conservatorship in September 2008.


Some congressional Democrats want to cap credit card
interest rates, but the idea is not included in either of the
main House or Senate legislative packages.

Another bill offered in the Senate last year would cap
rates at 36 percent for all consumer credit — mortgages,
payday loans, car title loans — not just credit cards. It is
not included in the two main legislative packages either.

Some states have usury laws. Both the main House and Senate
reform packages have provisions saying how often and how far
federal regulators may preempt, or block, state consumer
protection laws, which can affect state usury statutes.

Investing Research

(For story click on [ID:nN13110937])

(Factbox on the Democratic Senate bill, [ID:nLDE63D217])

(Factbox on the players, [ID:nN14167297])

(Factbox on reform proposals, [ID:nN14149197])

(Reuters Insider video, http://link.reuters.com/jeh77j)

(Reuters Insider video, http://link.reuters.com/nuk77j)

(Reporting by Kevin Drawbaugh, editing by Vicki Allen)

FACTBOX-Some financial reforms missing from U.S. bills