Dear Mr. Boren:
Thank you for contacting me to express your concerns about legislation to reform financial market regulation. I appreciate hearing your thoughts about this critical issue and welcome this opportunity to respond.
On March 22, 2010, the Senate Banking, Housing, and Urban Affairs Committee reported its version of regulatory reform legislation drafted by its chairman, Senator Christopher J. Dodd (D-CT). Key reforms of Chairman Dodd's legislation (S. 3217) would:
o Create a centralized independent regulator, known as the Financial Stability Oversight Council, to monitor systemic risk posed by financial institutions deemed "too big to fail." This regulator would have the authority, in conjunction with the Federal Reserve, to break up institutions that pose a threat to the overall stability of the economy.
o Establish a Consumer Financial Protection Bureau within the Federal Reserve to regulate mortgages, credit cards, and other financial products. I am a supporter of this proposal and hope that the final version of this legislation includes such a consumer protection regulator.
o Establish executive pay guidelines and recoup bonuses that were awarded based upon unsound business practices. Shareholders would be provided with a non-binding vote on executive pay structures and the ability to nominate, via proxy, a firm's board of directors.
o Require the Securities and Exchange Commission (SEC) to develop rules to ensure that credit rating agencies' marketing and sales functions do not influence securities ratings.
I am also a cosponsor of legislation introduced by Senator Jeff Merkley (D-OR), known as the PROP Trading Act (S. 3098), that would prohibit federally-insured banks from engaging in high-risk proprietary trading. This bill would effectively implement what has come to be known as the Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, and would separate the traditional banking practices of deposit-taking banks from the more risky trading activities of hedge funds, private equity firms, and investment banks. Senator Dodd's legislation would also require the proposed Financial Stability Oversight Council to develop similar proprietary trading rules.
On December 11, 2009, the House of Representatives passed its own version of financial market reform legislation (H.R. 4173). The full Senate is currently debating this issue. I understand your belief that legislative proposals being considered by Congress may be unworkable or impose costs on some soundly managed financial institutions. Your thoughts on reforming financial market regulations and improving oversight are helpful as I review these legislative proposals. I will be sure to keep your concerns and suggestions in mind as I work with my Senate colleagues to modernize our financial system going forward.
Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.
Sincerely yours,
Dianne Feinstein
United States Senator
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