WASHINGTON-Even with the proposed carve-out, there will be no escaping some of the effects of the huge bill for credit unions.
For example, the consumer agency will write new regulations for all financial products that will have to be followed by credit unions, and the requirement that financial derivatives be traded on exchanges will affect pricing for corporates and other credit unions who trade swaps, options and other derivatives.
One measure being debated would require credit unions, banks and other mortgage originators to retain a minimum, maybe 5%, or the loans when sold on the secondary market.
Another proposal being debated would create a new mutual bank charter because of the expectation the current S&L charter will be phased out, along with its regulator, the Office of Thrift Supervision, providing a potential alternative for credit union conversions.
The massive regulatory bill signaled new efforts by Congress to address what are widely recognized as abuses that helped create the financial crisis; like the sale of subprime and other alternative mortgages; the unregulated market for credit default swaps and other financial derivatives; lapses in the ratings of financial instruments that have come back to bite credit unions and other investors; and large compensation packages tied to performance that encouraged excessive risk-taking.
"We need to regulate what wasn't regulated," said Rep. Scott Murphy, a New York Democrat, during the debate on the bill.
Keith Ellison, a Democrat from Minnesota, cited what he called "years of lax regulation and oversight" and the "utter failure of consumer protection" among the chief causes of the ongoing financial crisis.
Republicans Oppose Plan
But Republicans, overwhelmingly opposed to the bill, called the Democrats' regulatory scheme "socialism" and proposed their own package — a much smaller, 170-page alternative that was absent some of the main features of the Democrats' package, including the consumer protection agency and the systemic risk regulator. "This (Democrat) bill represents an assault on the economic liberties of the American people," said Rep. Jeb Hensarling (R-TX), who has been leading the effort to defeat the proposed reforms.
Of particular concern to the Republicans was the proposed agency that would monitor risk to the financial system and be empowered to wind down large companies they believe could bring down the system, such as an AIG, a Lehman Brothers, Bear Stearns or Fannie Mae. Under the proposal, all financial firms over $50 billion in assets would pay fees to create a bailout fund of as much as $200 billion that would be used to resolve such failures, as opposed to the ad hoc measures that were incorporated by the government this year in those cases. Rep. Spencer Bachus, the Alabama Republican, said he was concerned the plan makes permanent the concept of a government bailout for troubled firms and makes healthy firms pay for the failure of unsuccessful competitors. "This creates a permanent bailout fund of $200 billion," said Bachus, "where healthy firms pay to bail out unhealthy competitors who took too many risks."
The Senate was knee-deep in its own debate on healthcare reform last week and was waiting for the House to complete its work on the financial services reform package and is not expected to take up the issue until after the new year.
