Law firm Sullivan & Cromwell has issued a comprehensive summary and analysis of the Senate financial regulatory reform bill, or the “Restoring American Financial Stability Act of 2010” or “RAFSA.”
Sullivan & Cromwell says that if enacted, RAFSA would implement far-reaching changes across the financial regulatory landscape.
For example, the revised assessment base for determining federal deposit insurance premiums would significantly increase the largest banks’ share of these premiums. RAFSA’s focus is on U.S. financial institutions and regulatory frameworks, but many of the reforms would significantly affect non-U.S. financial institutions operating in the United States and, potentially, extraterritorially.
RAFSA includes provisions designed to:
- establish a new interagency council to manage systemic risk in the financial system;
- subject systemically important financial companies (including nonbank financial companies) and activities to heightened prudential standards and regulation by the Board of Governors of the Federal Reserve System (the “FRB”);
- address “too big to fail” and other concerns by establishing a new resolution procedure for large financial companies (but not their bank subsidiaries);
- centralize responsibility for consumer financial protection by creating a new agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws, and establish many new consumer protection measures;
- apply the same leverage and risk-based capital requirements that apply to insured depository institutions to bank holding companies, savings and loan holding companies and systemically important nonbank financial companies, which could potentially exclude all trust preferred and cumulative preferred (including TARP preferred) securities from Tier 1 capital;
- abolish the Office of Thrift Supervision and reallocate its supervisory responsibilities to the other federal banking regulators;
- change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital;
- impose new regulatory requirements and restrictions on federally insured depository institutions, their holding companies and other affiliates, as well as other systemically important nonbank financial companies, including the so-called “Volcker rule” ban on proprietary trading and sponsorship of, and investment in, hedge funds and private equity funds;
- impose comprehensive regulations on the over-the-counter derivatives market, including the so-called “Lincoln push-out provision” that would effectively prohibit insured depository institutions from conducting derivatives businesses in the institution itself;
- require persons offering asset-backed securities to retain some of the risk associated with the offered securities, so-called “skin in the game”;
- implement certain corporate governance reforms, including with regard to executive compensation, director elections and proxy access, that would apply to all companies, not just financial institutions;
- eliminate the private adviser exemption from registration, thereby requiring advisers to hedge funds to register with the SEC, while providing a new exemption from registration for advisers to venture capital funds and private equity funds (although advisers to private equity funds would be required to provide such reports to the SEC as the SEC may by rule require);
- reform the regulation of credit rating agencies; and
- establish an Office of National Insurance within the Treasury Department and reform the regulation of the nonadmitted property and casualty insurance market and the reinsurance market.
The full paper can be downloaded here.