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Compare Senate, House Financial Reform Bills: CFPA, Fed, Derivatives Differences

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A comparison of the Senate and House financial regulation bills:

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OVERSIGHT

_Senate: Creates a nine-member Financial Services Oversight Council made up of the treasury secretary, Federal Reserve chairman, a presidential appointee with insurance expertise, heads of regulatory agencies and a new consumer protection bureau that would monitor financial markets and watch for threats.

_House: Creates an 11-member council with similar duties.

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CONSUMER PROTECTION

_Senate: Creates a Consumer Financial Protection Bureau within the Federal Reserve to police lending, taking powers now exercised by various bank regulators. Those regulators could appeal bureau regulations to the oversight council, which could veto the regulations with a two-thirds vote. Federal regulators could override state consumer laws on a case-by-case basis. Currently states have a more difficult time applying their laws to national banks. Excludes from oversight any small business that does not engage in financial services.

_House: Creates a stand-alone Consumer Financial Protection Agency to police lending. There's no process to veto agency regulations. State law provision is similar to Senate's. Specifically excludes from agency oversight real estate brokers and agents, accountants and tax preparers and auto dealers.

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FEDERAL RESERVE

_Senate: The Federal Reserve would retain supervision over bank-holding companies and state-charted banks. It also would police large, interconnected nonbank institutions that the oversight council determines could pose a threat to the economy. With council approval, the Fed could break up large, complex companies that pose a grave threat to the financial system. The Government Accountability Office, Congress' investigative arm, would conduct a one-time examination of the Fed's emergency lending to financial institutions in the months surrounding the 2008 financial crisis.

_House: The Federal Reserve would lose consumer protection regulation authority and ability to unilaterally inject money into financial institutions. The GAO would be given broader power to conduct audits of the Fed.

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CAPITAL STANDARDS

Senate: Banks with more than $250 billion in assets would have to meet capital standards at least as strict as those that apply to smaller banks. Banks would not be able to include as top tier capital certain securities that are tax deductible subordinated debt.

House: Any large bank holding company identified as posing a potential risk to the economy would be required to put up additional capital – more money and assets on hand. In computing capital requirements, regulators would include a bank's off-balance sheet activities, such as trusts held for clients. These companies also would face a leverage cap of 15-1 debt-to-net capital ratio.

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DERIVATIVES

_Senate: Trades of derivatives, the complicated financial instruments blamed for accelerating the Wall Street crisis, would have to take place in regulated exchanges. Banks would have to spin off all their derivatives business into subsidiaries.

_House: Also regulates derivatives, but contains more exceptions for corporations that use derivatives as a hedge against price fluctuations, not as a speculative investment. The House does not require banks to spin off their derivatives business.

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BANK RESTRICTIONS

_Senate: Regulators would devise rules to prohibit bank holding companies with commercial bank operations from speculative trading with their own accounts. Large, interconnected companies would have to put more money in reserve.

_House: The oversight council may prohibit any activity, including speculative trading by commercial banks with their own accounts, if it finds that the activity could threaten the stability of the financial system. Large, interconnected companies would have to put more money in their reserves.

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EXECUTIVE PAY

_Senate: Shareholders would have the right to cast nonbinding votes on executive pay packages. The Fed would set standards on excessive compensation that would be deemed an unsafe and unsound practice for the bank.

_House: Shareholders would have the same right. Regulators would have a say on compensation practices, not on pay itself.

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RATINGS AGENCIES

_Senate: An independent board would select ratings agencies to assess the risks of new financial products, replacing a long-standing practice where banks select and pay ratings agencies to rate their new offerings. The bill would also require a wholesale re-evaluation on how the government uses ratings agencies to assess risk. Ratings agencies are blamed for giving too high ratings to bad mortgage-related securities.

_House: Ratings agencies would have to register with the Securities and Exchange Commission and would face increased liability standards.

MORTGAGE LOANS

Senate: Lenders would be required to obtain proof from borrowers that they can pay for their mortgages. The would have to provide evidence of their income, either though tax returns, payroll receipts or bank documents. That provision seeks to eliminate so-called stated-income loans where borrowers offered no proof of their ability to make mortgage payments.

House: Similar provision.

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