Bernanke Promises More Fed Action on Economy
On Friday, Fed Chairman Ben Bernanke said that the Federal Open Market Committee, the Fed panel that Bernanke leads and which sets interest rates, could make additional purchases of longer-term securities in order to prevent deflation. In regards to the overall state of the economy, Bernanke said “the pre-conditions for a pickup of growth in 2011 appear to remain in place, as banks increase lending, worries over the European sovereign debt-crisis abate and consumers increase their savings.”
SEC Votes to Give Shareholders “Proxy Access”
On Wednesday, the SEC Commissioners voted along party lines 3-2 to give shareholders what is commonly known as “proxy access,” which requires companies to include the names of all board nominees, even those not backed by the company, directly on the standard corporate ballots distributed before shareholder annual meetings. To win the right to nominate, an investor or group of investors must own at least 3% of a company’s stock and have held the shares for a minimum of three years.
Currently, shareholders who want to oust board members must pay for mailing separate ballots, as well as wage a separate campaign to win shareholder support. The new rule will be in place in time for the 2011 annual meeting season next spring.
However, the final rule did address concerns from the business community. Smaller companies will be exempt from complying with the rule for three years. Investors will be prevented from borrowing stock to meet the 3% threshold and will be restricted to nominating directors for no more than a quarter of a company’s board.
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Senate Financial Regulatory Reform Bill
On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced his latest draft financial regulatory reform bill. The bill creates a new consumer protection agency, which will be located within the Federal Reserve, with regulatory authority over financial products such as mortgages and credit cards. The legislation also creates a resolution authority framework to liquidate failed financial firms, imposes stricter capital and leverage requirements on banks, creates a systemic risk council, requires shareholders be allowed a non-binding vote on executive compensation, and imposes new rules and standards for credit rating agencies. The bill also alters the banking regulatory structure by giving the FDIC regulatory oversight of state banks with assets below $50 billion, giving the OCC authority over national banks and federal thrifts with assets below $50 billion, eliminates the Office of Thrift Savings, and gives the Federal Reserve authority over national banks and thrift holding companies with assets of over $50 billion. Finally, the bill contains language regarding the regulation of over-the-counter ”OTC” derivatives that is identical to Dodd’s November draft bill, but Dodd has indicated his desire to replace those provisions with language currently being negotiated between Senator Jack Reed (D-RI) and Senator Judd Gregg (R-NH). Sources indicate Reed and Gregg may be unable to reach an agreement on such language, and with the markup scheduled to begin next Monday and hundreds of amendments expected to be filed, it remains to be seen how Dodd will handle these provisions.
Dodd and Bernanke Exchange Criticism Over Proposed New Fed Role
On Wednesday, Federal Reserve Bank Chairman Ben Bernanke and former Fed Chairman Paul Volcker testified before the House Financial Services Committee at a hearing examining the central bank’s regulatory duties. During his testimony and under questioning by Committee members, Bernanke criticized Senate Banking Chairman Dodd’s draft regulatory reform bill for its provisions which remove the Fed’s supervisory role over small banks, saying it will deprive the central bank of key information it uses to execute monetary policy. On Thursday, Dodd’s staff countered Bernanke’s criticism by citing former Fed Vice Chair Alice Rivlin’s statement from a July 2009 Senate Banking Committee hearing in which she stated, “I don’t think that supervising individual banks is important to making monetary policy. I know that was said around the table when I was at the Fed, but I didn’t really experience that we learned a lot from supervising particular banking institutions that was useful to monetary policy.”
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