Wall St. Reform: Auto Dealers Exempt from New Credit Overseer

Rep. Barney Frank and Sen. Christopher DoddHouse-Senate leaders worked until dawn today to complete the most significant overhaul of Wall Street oversight since the Great Depression, paving the way for a final vote next week and a signature from President Obama by July 4.
Last-minute dealing led to fewer restrictions than initially proposed on derivatives trading and proprietary risk-taking by major banks.
Lawmakers also exempted auto dealers from oversight by a mostly independent Consumer Financial Protection Bureau, which would be housed in the Federal Reserve.  Republicans and some Democrats feared that additional oversight of the auto industry could raise the price of vehicles and hurt that industry’s rebound.
The new entity will oversee the most common loan products held by Americans, including credit cards, mortgages and payday loans.
“We’ve all seen what happens when there is inadequate oversight and insufficient transparency on Wall Street,” President Obama told reporters as he left the White House today to attend an economic summit of world leaders in Toronto. “The reforms working their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we’re still recovering from.”
The consumer watchdog provision has drawn intense opposition from banks and the U.S. Chamber of Commerce. They are concerned the agency would create politically-motivated policies; have power over non-financial companies that are not in the business of consumer finance; and standardize loan products which they say would reduce options for borrowers.
The bureau will have the authority to examine and enforce regulations for banks and credit unions with assets of more than $10 billion; all mortgage-related businesses; and large non-bank financial companies, such as large payday lenders, debt collectors, and consumer reporting agencies. Banks with assets of $10 billion or less will be examined by the appropriate bank regulator.
But the House-Senate panel’s final marathon session centered on limiting risky trading by banks. The compromise would limit the types of derivatives banks could trade, including those tied to interest rates, foreign exchange rates, gold and silver and those that would hedge a bank’s risk.
Other derivatives, including credit default swaps that blamed for much of the massive investment losses in the financial crisis of two years ago, can only be traded by a bank affiliate. Banks would have up to two years to spin off those swaps business units.
The conference committee headed by Rep Barney Frank, D-Massachusetts, also agreed to a provision dubbed the Volcker rule – named after proponent Paul Volcker, former Fed chairman and advisor to President Obama.  The rule restricts proprietary trading – trading with investments of a bank’s funds for its own profit instead of for its clients — as well as investments in hedge funds and private equity funds.
The provision would mandate a ban on risky investments, but it would permit banks to make small investments in hedge funds and private equity funds, limiting such investments to 3 percent of a bank’s capital.
Another cornerstone of the Wall Street reform bill is a new oversight council that will monitor systemic risk and make recommendations to the Federal Reserve. The Fed would create stricter rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.
Its intent is to end the controversial “too big to fail” policy of the past two years that enabled the distribution of hundreds of billions of dollars in taxpayer bailouts to financial institutions.
To pay for the cost of oversight, House-Senate negotiators agreed to assess a fee on banks with assets of more than $50 billion and hedge funds f more than $10 billion in assets to raise $19 billion over 10 years.
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