Financial Reform:

What Made It In, What Got Watered Down, and
What Was Never Even Considered

By Jill Mazzetta

This article is from the July/August 2010 issue of Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org/archives/2010/0710reformsidebar.html


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This article is from the July/August 2010 issue of Dollars & Sense magazine.

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Title of Amendment Description Status
Transaction Tax Would impose a small tax on most trades of stocks and securities, discouraging brokers from trading back and forth to inflate their profits and/or manipulate the market. Never seriously considered, not a part of the bill.
Volcker Rule (Merkley-Levin Amendment) Prohibits banks from engaging in proprietary trading, the act of trading to bolster their own wealth instead of that of their clients. Does not prevent commercial banks from engaging in investment activities such as trading in securities. Recent alterations exploit the investment loophole, allowing banks several private investment avenues, including hedge funds. Accepted, but watered down.
Too Big to Fail
(S.AMDT 3733)
Limits the size and liabilities of big banks to prevent them from becoming “too big to fail” again. Rejected
Audit of Federal Reserve
(S.AMDT 3738)
Mandates a one-time audit of the Federal Reserve's response to the financial crisis, including public disclosure of how over $2 trillion in aid was distributed. A more aggressive version of this amendment, requiring the audit to be handled by an independent agency, was rejected. Accepted
Whistleblower Protections
(S.AMDT 3840)
Provides whistleblower protections for employees of credit-rating agencies, such as Moody's and Standard & Poor's. Similar protections to those of the 2002 Sarbanes-Oxley Act, which enhanced accountability and auditing standards for public companies. Accepted
Derivative Regulation Loosening
(S.AMDT.3816)
Allows banks to keep their derivatives businesses as they currently are. Derivatives, complex financial agreements whose value is derived from some other asset, typically the underlying stock, were at the core of the financial collapse. Relaxes several other regulation measures in the original bill. Rejected
Predatory Lending Prevention
(S.AMDT.3962)
Prevents mortgage dealers from receiving undisclosed financial incentives for selling risky loans. Requires underwriters to verify that clients are capable of making future payments before approving loans. Accepted
Debit Transaction Control
(S.AMDT.3989)
Creates a limit on the fees retail businesses incur when processing debit card transactions. Would save billions of dollars for all businesses whose customers increasingly pay with debit cards, from family restaurants to Wal-Mart. Does not specifically address credit card transactions. Accepted
State Banking Regulations
(S.AMDT.4071)
Relaxes restrictions on federal authority to prevent states from creating their own, more aggressive regulations against big banks. Accepted
Derivatives Provision
(compromise: Dodd Amendment, S.AMDT.4100)
Requires banks to spin off their trade in derivatives or else lose government insurance (and therefore taxpayer accountability) for their clients' deposits. A recent amendment transforms the spin-offs into separately capitalized companies, effectively nullifying the threat of insurance loss and reinstating taxpayer involvement in any future bailouts. Accepted but watered down.
To Prohibit Naked Credit Default Swaps
(S.AMDT. 4114)
Would outlaw so-called naked credit default swaps, insurance-like contracts that will cover losses on certain securities in the event of a default. Never seriously considered

Jill Mazzetta is a recent graduate of Emerson College and a Dollars & Sense intern.

Resources: Derek Willis, Stephan Weitberg, Shan Carter, and Matthew Bloch, “Key Amendments to S.3217, Senate Financial Regulatory Bill,” New York Times; John Miller, “Sand in the Wheels, Not in the Face,” Dollars & Sense, March/April 2010; “S.3217: Restoring American Financial Stability Act of 2010,” www.govtrack.us; Dwight Smith, Christina A. LaVera and Darren Cooper, “ Financial reform legislation: amendments to Senate bill begin,”www.lexology.com; Robert Peston, “What Volcker thinks,” www.bbc.co.uk; May 14, 2010; Robert Reich, “Lincoln to the Rescue,” www.robertreich.com; May 11, 2010; Annie Lowrey, “Merkley, Klobuchar Amendment Banning Liar Loans Approved,” Washington Independent, May 12, 2010; David M. Herszenhorn, “Senate Republicans Call Reform Bill a 'Takeover' of the Banking Industry,” New York Times, May 18, 2010; David Herszenhorn, “Senate Voting on Regulation Amendments,” New York Times, May 5, 2010; Mary Bottari, “Derivatives Reform Suffers a Midnight Mangling,” BanksterUSA, June 25, 2010.

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