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The comprehensive financial legislation, which finalized in the early morning last Friday, will constitute the largest US financial regulatory reform since the 1930s.
Overall, Legislation is to fill regulatory gap, and to terminate speculation which led to the 2008 financial crisis to a certain extent.
Major Contents of the Bill Include:
Regulatory Functions: In the case of collapse of major problems financial firms may led to financial system lost stability, federal regulators will have the right to take over and split them without assistance of taxpayer funds.
Financial Stability Council: A ten-member Financial Stability Oversight Council will be set up to be responsible for monitoring and handling the system risk endangering the national financial stability.
Supervision of the Federal Reserve: To authorize the one-time audit on all the emergency lending programs of Federal Reserve (Fed) since the financial crisis.
Consumer Protection Institution: To set up Consumer Financial Protection Bureau in Fed, which make rules for financial products, service bank, non-banking institutions providing credit cards mortgage loan and other loans to consumers, and have certain enforcement powers.
Preventive Power of State Government: To allow states to implement more stringent consumer protection laws of their own against national banks. State Attorney General will be empowered to enforce some of the rules released by the Consumer Financial Protection Bureau.
Deposit Insurance: To increase limit of federal deposit insurance to US$250,000 for banks, deposit-taking companies and credit unions at one time, whose period dates back to January 1, 2008.
Mortgage Loan: To establish new national minimum underwriting standards against housing mortgage. Lending institutions will be asked to verify the borrowers by income, credit history and employment status, to ensure the borrowers ability to repay home loans. To prohibit payment to the broker, in order to avoid them in guiding borrowers to borrow high-priced loans.
Insurance: To set up a new Federal Insurance Office in Treasury Department that is responsible for monitoring insurance industry.
Investment Consulting: To authorize Securities and Exchange Commission to raise standards on broker-dealers providing investment advice after a study at them.
Hedge Funds: Requirement for hedge funds and PE funds registered to investment consulting institutions in the Securities and Exchange Commission, and providing transaction information to assist regulators in monitoring the system risk.
Derivatives: A comprehensive regulation will be first taken on OTC derivatives market, including products trading and companies selling products.
Swap Derivatives Business Spin-off: Requiring banks to split the highest risk derivatives trading department only to affiliates. Banks will be able to keep the department of interest rate swaps, currency swaps, swap gold, etc.
Volcker Rule: To restrict proprietary trading of large financial enterprises and allow banks still doing a small amount of investment in hedge funds and PE funds.
Securitization: Banks which package loans will be required to remain 5.0% of credit risk in their balance sheet as a whole.
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