Congressman Kanjorski is Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. 

Kanjorski Amendment Addressing "Too Big to Fail"

Chairman Kanjorski released his amendment to the Financial Stability Improvement Act that would empower federal regulators to rein in and dismantle financial firms that are so large, inter-connected, or risky that their collapse would put at risk the entire American economic system, even if those firms currently appear to be well-capitalized and healthy.  Therefore, American taxpayers should no longer be on the hook for bailouts, as financial companies would not be able to become "too big to fail."

The Kanjorski amendment expands on a segment of the Financial Stability Improvement Act, by enabling federal action to address financial companies that are deemed "too big to fail" before resolution authority is needed.  The amendment transfers such mitigatory action from the Federal Reserve to the Financial Services Oversight Council and establishes objective standards for the Council to effectively evaluate companies to determine whether they are systemically risky.  Additionally, the amendment provides clear checks and balances by requiring the Council to consult with the President before taking extraordinary mitigatory actions.  A financial company also has the right to appeal any actions.

A summary of the Kanjorski amendment follows:

• Objective Standards.  Size is by no means the only factor to determine if a financial company is "too big to fail."  The recent financial crisis has shown that many other factors can also cause a company to become a systemic risk.  Rather, the amendment considers a variety of objective standards to determine if financial firms pose a threat to our financial stability, including the scope, scale, exposure, leverage, interconnectedness of financial activities, as well as size of the financial company.  The Kanjorski amendment does not cap the size of financial institutions.

• Mitigatory Actions.  If a financial company is deemed systemically risky, the Kanjorski amendment provides responsible preventative actions to protect our financial system and curtail those risks.  These include modifying existing prudential standards, imposing conditions on or terminating activities, limiting mergers and acquisitions, and in the most extreme cases, breaking up the company.

• Protects American Competitiveness.  We have learned from this financial crisis that we are all connected.  The Kanjorski amendment addresses the concern that our regulatory system works in conjunction with those around the globe.  Currently, the European Union is considering similar action, and harmonized regulations would benefit both economies.
  

Click here to view the text of the Kanjorski amendment.

Chairman Kanjorski has introduced four of the eight pieces of legislation that the Financial Services Committee will introduce to address regulatory reform of the financial services industry.  The bills aim to better protect investors, enhance credit agency regulation, force the registration of the advisors to hedge funds and private equity pools, and create a federal insurance office.

Summaries of the four pieces of regulatory reform legislation drafted by Chairman Kanjorski follow:

Investor Protection Act - H.R. 3817

• Protecting Investors and Righting Wrongs. The financial crisis exposed the perils of deregulation. The Investor Protection Act will right these wrongs by reforming the Securities and Exchange Commission (SEC) to strengthen its powers, better protect investors, and efficiently and effectively regulate our securities markets.

• Comprehensive Securities Review and Reorganization. The failures to detect the Madoff and Stanford Financial frauds demonstrate deep deficiencies in our existing securities regulatory structure. An expeditious, independent, comprehensive study of the entire securities industry by a high caliber body will identify reforms and force the SEC and other entities to put in place further improvements designed to ensure superior investor protection.

• Enhanced SEC Enforcement Powers and Funding. By doubling the authorized funding for the SEC over 5 years and providing dozens of new enforcement powers and regulatory authorities, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police today's markets.

• Fiduciary Duty. Every financial intermediary who provides personalized advice will have a fiduciary duty toward their customers. Through a harmonized standard, broker-dealers and investment advisers will have to put customers' interests first.

• Whistleblower Bounties. A whistleblower bounty program will create incentives to identify wrongdoing in our securities markets and reward individuals whose tips lead to successful enforcement actions. With a bounty program, we will effectively have more cops on the beat in our securities markets.

• Ending Mandatory Arbitration. Because mandatory arbitration has limited the ability of defrauded investors to seek redress, the SEC will gain the power to bar these clauses in customer contracts.

• Closing Loopholes and Fixing Faulty Laws. The Madoff fraud revealed that the Public Company Accounting Oversight Board lacked the powers it needed to examine the auditors of broker-dealers. The $65 billion Ponzi scheme also exposed faults in the Securities Investor Protection Act, the law that returns money to the customers of insolvent fraudulent broker-dealers. The Investor Protection Act closes these loopholes and fixes these shortcomings.

H.R. 3817, the Investor Protection Act

Section by section summary of H.R. 3817

Manager's amendment to H.R. 3817

Summary of proposed changes to H.R. 3817

Letter of support from AARP

Letter from the American Institute of Certified Public Accountants

Accountability and Transparency in Rating Agencies Act - H.R. 3890

• Stronger than the Administration's Plan on Rating Agencies. The Accountability and Transparency in Rating Agencies Act builds on the initial credit rating agency legislation proposed by the Administration in that it:
  
  
• Creates Accountability by Imposing Liability.  The bill enhances the accountability of Nationally Recognized Statistical Rating Organizations (NRSROs) by clarifying the ability of individuals to sue NRSROs.  The bill also clarifies that the limitation on the Securities and Exchange Commission (SEC) or any State not to regulate the substance of credit ratings or ratings methodologies does not afford a defense against civil anti-fraud actions.
  
  
• Duty to Supervise.  The bill adds a new duty to supervise an NRSRO's employees and authorizes the SEC to sanction supervisors for failing to do so.
  
  
• Independent Board of Directors.  The bill requires each NRSRO to have a board with at least one-third independent directors and these directors shall oversee policies and procedures aimed at preventing conflicts of interest and improving internal controls, among other things.

• Mitigate conflicts of interests. The legislation also contains numerous new requirements designed to mitigate the conflicts of interest that arise out of the issuer-pays model for compensating NRSROs. Additionally, the bill significantly enhances the responsibilities and accountability of NRSRO compliance officers to address conflicts of interest issues.

• Greater Public Disclosure. As a result of the bill, investors will gain access to more information about the internal operations and procedures of NRSROs. In addition, the public will now learn more about how NRSROs get paid.

• Revolving-Door Protections. When certain NRSRO employees go to work for an issuer, the bill requires the NRSRO to conduct a 1-year look-back into the ratings in which the employee was involved to make sure that its procedures were followed and proper ratings were issued. The bill also requires NRSROs to report to the SEC, and for the SEC to make such reports public, the names of former NRSRO employees who go to work for issuers.

H.R. 3890, the Accountability and Transparency in Rating Agencies Act

Section by section summary of H.R. 3890

Manager's amendment to H.R. 3890

Letter of support from the Consumer Federation of America, and other consumer and investor groups

Letter of support from the Council of Institutional Investors

Letter of support from state and local governments

Private Fund Investment Advisers Registration Act - H.R. 3818

• Everyone Registers. Sunlight is the best disinfectant. By mandating the registration of private advisers to private pools of capital regulators will better understand exactly how those entities operate and whether their actions pose a threat to the financial system as a whole.

• Better Regulatory Information. New recordkeeping and disclosure requirements for private advisers will give regulators the information needed to evaluate both individual firms and entire market segments that have until this time largely escaped any meaningful regulation, without posing undue burdens on those industries.

• Level the Playing Field. The advisers to hedge funds, private equity firms, single-family offices, and other private pools of capital will have to obey some basic ground rules in order to continue to play in our capital markets. Regulators will have authority to examine the records of these previously secretive investment advisers.

H.R. 3818, the Private Fund Investment Advisers Registration Act

Section by section summary of H.R. 3818

Manager's amendment to H.R. 3818

Summary of proposed changes to H.R. 3818

Federal Insurance Office Act - H.R. 2609

• Federal Insurance Expertise.  Insurance plays a vital role in the smooth and efficient functioning of our economy, but the credit crisis highlighted the lack of expertise within the federal government regarding the industry, especially during the collapse of American International Group, also known as AIG, and last year's turmoil in the bond insurance markets.  A Federal Insurance Office will provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks, and help ensure a well functioning financial system.

• International Coordination.  Although America's insurance markets still operate on a state-by-state basis, today's financial markets are global.  The Federal Insurance Office will therefore provide a unified voice on insurance matters for the United States in global deliberations.  The Federal Insurance Office and the United States Trade Representative will share the authority to enter into and negotiate agreements with foreign entities.

• Promote Financial System Stability.  Insurance accounts for 10 percent of the assets of the financial system and employs almost 40 percent of the employees in the financial services industry.  Having a strong knowledge base at the Federal level of government will be instrumental in helping to promote stability in our financial system.

H.R. 2609, the Federal Insurance Office Act which was offered as an amendment in the nature of a substitute to H.R. 2609

Section by section summary of H.R. 2609