U.S. Sen. Chris Dodd clawed together sufficient support for a compromise overhaul of the financial services industry, a bill that promises a significant impact on the clusters of insurers, lenders and hedge funds in his home state of Connecticut, as well as the GE Capital unit of Fairfield-based General Electric Co.
Separately, the U.S. Supreme Court in June struck down a legal challenge to the Sarbanes-Oxley Act of 2002, enacted in the wake of the Enron Corp. scandal and seen by middle-market companies as a hindrance to raising money on public stock exchanges.
The Dodd bill extends unprecedented government oversight to privately held companies in the financial industry. In compromise form it has passed both houses of Congress and awaits the president”™s signature, which is expected.
“We have produced a strong Wall Street reform bill that will fundamentally change the way our financial services sector is regulated,” Dodd said, in a prepared statement. “We found a way to end ”˜too-big-to-fail”™ bailouts, ensuring that no financial institution will ever be capable of bringing down the economy. We closed loopholes in regulations and required greater transparency and accountability. I am proud of this bill.”
Among a multitude of other provisions, the bill requires hedge funds to register with the U.S. Securities and Exchange Commission; disclose information on trades; and forces those with more than $10 billion in assets to pay a fee to help underwrite the cost of implementing the bill. For the first time, the government will oversee the over-the-counter derivatives market.
Fairfield County has one of the world”™s foremost clusters of hedge funds, including Westport-based Bridgewater Associates that is among the largest globally.
The Managed Funds Association reversed its long-held policy last year of opposing the mandatory registration of investment advisors with the SEC, which Richard Baker, the trade group”™s president, said would pose a challenge for the industry.
“Ultimately, our membership acted not because of political expediency, but because our investors have demanded more transparency and accountability,” Baker said in a mid-June blog. “For nearly half of the hedge fund industry that has not already registered voluntarily, mandatory registration with the SEC will significantly increase oversight and regulation and will require industry participants to allocate significant time and resources, at a meaningful cost, to legal and regulatory compliance.”
Under the bill, insurance carriers in Hartford and Fairfield County would come under the oversight of a new federal regulatory office within the U.S. Department of Treasury, with states continuing their own oversight. Fairfield County has a significant concentration of reinsurance companies, including the General Re Corp. division of Berkshire Hathaway in Stamford that employs some 800 people.
The linchpins of the legislation allow the federal government to seize companies whose failure could imperil the financial system and to provide regulators with far more information than previously to monitor companies and markets. Companies will likely be subject to tougher capital and leverage ratios in an effort to keep them from foundering in any future financial panics.
A new Financial Stability Oversight Council would have the power to break up financial companies whose size is deemed to pose a risk to destabilizing the system in event of their failure. And a new Consumer Financial Protection Bureau within the Federal Reserve will have new powers to regulate credit cards, mortgages and other retail lending.
States will also gain the ability to scrutinize more closely the activities of nationally chartered banks operating within their borders. Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said any such provision could impact commercial lending in Connecticut the long run, given the state”™s record in passing laws and regulations CBIA deems detrimental to encouraging commerce in Connecticut.
