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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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.
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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.
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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
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