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No mechanism to wind down and break up large, interconnected institutions in an orderly fashion
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- Ends taxpayer bailouts
- Creates comprehensive orderly dissolution regime for large, interconnected firms;
- Protects taxpayers by requiring costs to be borne by industry, creditors and shareholders, and management
- Directs regulators to take steps to control risks and break up firms before they become too large, interconnected, concentrated, or risky
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- Relies on changes to the Bankruptcy Code, which could lead to systemic disruption and uncertainty within the markets
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Minimal regulation of investment bank holding companies
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- Strong, consolidated supervision of interconnected firms, including investment bank holding companies
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No mechanism to identify and address systemic risks (firm specific or activity specific)
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- Consolidated supervision of systemically important financial services holding companies;
- Creates Systemic Risk Council to monitor the financial system for potential risks;
- Facilitates communication among Council members to enhance overall knowledge of the markets;
- Requires analysis of both firms and activities for potential risk
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- A Markets Stability and Capital Adequacy Board gathers data and reports to Congress and functional regulators;
- No provision for consolidated supervisor
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Risky, undetected off- balance sheet exposures
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- Requires the computation of capital requirements for large, interconnected firms to take into account the off-balance sheet activities of the company (Fed authority to exempt a company or certain of its transactions)
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Insufficient regulation of OTC Derivatives
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- Registration of swap dealers and major swap participants;
- Required clearing and trading of certain swaps;
- Reporting of all swap transactions;
- Regulators must set capital and margin; requirements for swap dealers and major swap participants;
- Regulators may remove end user exemption if systemically risky counterparty exposure is created
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- No mandatory clearing or trading requirements;
- Focuses on reporting of swap data
- Does require regulators to set margin requirements
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Excessive compensation rewarding risky behavior
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- Gives shareholders a “say on pay” – an annual, non-binding, advisory vote on pay practices including executive compensation and golden parachutes;
- Enables regulators to ban inappropriate or imprudently risky compensation practices;
- Requires financial firms with more than $1 billion in assets to disclose any compensation structures that include incentive-based elements.
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- Agrees with Democrats for a non-binding “say on pay,” but requires a vote only once every three years;
- No provisions to allow regulators to address risky, incentive-based compensation structures
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Credit Rating Agencies’ methodologies failed to identify key risks
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- Greater transparency in methodologies and ratings in structured and non-structured products;
- Enhanced oversight by the SEC;
- Conflicts of interest and liability provisions
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- No provisions except name change of NRSRO
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Gaps in SEC authority
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- Increase funding to meet need for enhanced SEC regulation and greater enforcement activities
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- No corresponding provision
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Breakdowns in inter-agency communications
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- Specific authority to share reports and other information among relevant regulators;
- Backup authority if primary regulator fails to act;
- Systemic Risk Council has authority to recommend increased prudential standards and requirements to primary regulators
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- Requires functional regulator to share reports with the Market Stability and Capital Adequacy Board
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Excessive leverage and insufficient capital
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- Requires the computation of capital requirements for financial holding companies that are subject to stricter standards to take into account all off-balance sheet activities of the company (Fed authority to exempt a company or certain of its transactions);
- 15 to 1 cap on leverage ratios for these companies
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- Include swaps exposure in establishing capital requirements for swap users
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Excessive reliance on short-term debt
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- Fed may limit the short-term debt of financial holding companies that are subject to stricter standards to prevent these entities from exposure to runs on the bank
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