Daily news highlights for consumers following the U.S. financial reform law.
Financial reform – an incumbent’s new best friend
A new poll shows the financial reform law is the only one supported by a majority of Americans out of the five major pieces of legislation passed by Congress in the last two years. Six in 10 Americans approve of the financial overhaul law, according to the USA Today/Gallup poll. But a majority of Americans disapprove of the 2009 stimulus package, the GM/Chrysler bailout, healthcare reform, and the 2008 banking bailout. That means in the run-up to the November election, consumers can expect to see lots of TV and print ads touting financial reform by House and Senate incumbents trying to hold on to their seats.
Basel III and thee
The new so-called Basel III agreement reached by the richest countries will require banks to triple the amount of capital they hold as a cushion against loans, a step that should help prevent a financial meltdown like the one that triggered the Dodd-Frank Act. Under the new Basel accord, banks must hold common equity — a type of capital — equaling at least 7 percent of their assets by the end of 2018. Doesn’t sound like much? Well, some big banks currently hold as little as 2 percent of capital against their assets.
The U.S. financial reform law includes an amendment from Republican Sen. Susan Collins of Maine requiring banks to stop including trust preferred securities and other hybrid instruments from their Tier 1 capital calculation, with a few exceptions. Also required is for the Fed to impose tougher leverage limits on systemically significant non-bank financial companies with assets of $50 billion or more.
Bounty hunters
With expanded and lucrative whistleblower incentives included in the financial reform law, it might be a good time for policymakers to dust off a 1999 academic study titled, “The New Snitching for Dollars: The Economics and Public Policy of Federal Civil Bounty Programs.” In that decade-old analysis, authors Marsha Ferziger of the University of Chicago and Daniel Currell of the Corporate Executive Board found federal agencies’ bounty programs were inconsistent and had shortcomings that undermined their effectiveness.
Under the reform law, the Securities and Exchange Commission can pay 10-30 percent of any recovery to a whistleblower who alerts the agency to securities fraud at his or her company. Want to tell the SEC how it should carry out its new bounty program? Go to the website here, then scroll down to “Title IX — Investor Protection and Improvements to the Regulation of Securities” to the section on whistleblowers. To see what others have already told the SEC about it, take a look here.
More data coming
The American Banker points out today that the Dodd-Frank law creates a new data-gatherer to collect and analyze information on behalf of the Financial Stability Oversight Board, the board charged with predicting the next big risk for the banking system. The new Office of Financial Research will be an independent office within the Treasury Department and run by a presidential nominee confirmed by the Senate. It will also have subpoena power, in case any big U.S. banks balk at turning over internal computer modeling results. Yet to be determined: Exactly what data the office will collect, and from which banks and companies.