Wednesday, June 02, 2010

The Senate’s Wall Street Reform Bill

A few weeks ago the U.S. Senate passed a Wall Street reform bill with a 59 to 39 majority. The legislation is intended to help prevent future bank failures such as those that led to the financial collapse of 2008. The House of Representatives passed a different bill aiming to take on Wall Street back in December, and the two will need to be reconciled before a final package can be sent to the President’s desk. Although all the provisions in the Senate’s legislation may not make it into the final bill, I wanted to take a look at all of the possible tax implications on American consumers.

Curb Abusive Lending Practices

One of the main purposes of the legislation is to “curb abusive lending practices,” but not to punish big banks. There are a number of tactics they will use to help reduce unscrupulous lending, many of which will be explained in this blog entry.

"Our goal is not to punish the banks,” explained President Obama, “but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years.”

Bureau of Consumer Protection

To help protect consumers from abusive lending the federal government would setup a new bureau to help Americans. It would have authority to write and enforce rules for nearly any business that offers loans including mortgage companies, payday loan providers, and even car finance companies. The bureau would also create an abuse hotline, and will work to act quickly when new financial companies begin taking advantage of consumers.

Foreclosure Relief for the Unemployed

Another main component of the bill aimed at helping taxpayers is a $3 billion fund to provide relief to struggling homeowners. Although, the details are not entirely clear, the program would lend up to $50,000 to unemployed homeowners whom could likely resume making payments within two years.

Shareholder Rights Over Bonuses

In an obvious response to the public’s anger about the multimillion-dollar bonuses that were given out to executives of bailed-out banks, the Wall Street reform bill gives shareholders the right to cast nonbinding votes on executive pay packages. Additionally, the federal government would be given the power to set standards on excessive compensation deemed unsafe.

Rights for Government Seizures

The legislation would allow the federal government to seize large financial institutions whose difficulties pose a risk to the American financial system. The government would then have the authority to fire executives and wipe out shareholders.

Financial Stability Oversight Council

Once the bill is passed into law, a new Financial Stability Oversight Council will be created by the Treasury. The council will work with companies considered significant to the American financial industry to ensure they meet strict capital, leverage, and liquidity requirements. These companies will also be forced to create systematic plans should they fail.

Future of the Legislation

The Senate and House of Representatives have until July 4, 2010 to present a final package to President Obama. The legislation could change significantly over the next month, however since both chambers of Congress have passed similar bills we can expect that a significant reform package will be signed into law this summer.

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