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Coffee Break Exam on new USA Financial Regulation recently passed by Congress and the Senate.
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Here is a mini exams to help you update your knowledge of changes to US
Financial Regulations. We update these questions each month so that you
can keep abreast of industry developments.
The Senate and Congress have been busy producing over 3000 pages of legislation. These bills have to be combined and then passed before the bill becomes law. SO .. there are sure to big changes.
See what you know about the new legislation .. Take the quick test below!!
Coffee Break Exam .. Can you answer all 5 correctly?
US Regulations- June 2010
1. What is the Volcker Rule that may be implemented in the US?
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The Volcker rule was designed to designed to prevent excessive risk-taking at financial institutions.
The Volcker Rule would generally prohibit banks and bank holding companies from engaging in proprietary trading activities and from sponsoring and investing in private equity and hedge funds. The Senate bill contains a version of this rule but the House bill does not.
To learn more about this rule, visit the Volcker Plan.
2. What has to occur before the new US Financial Regulation bill becomes law?
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Both versions will now be passed to a conference committee to be combined into a single legislation.
The committee will include senior members of the congressional committees that drafted the bills. Representative Frank from the House Financial Services Committee, Senator Blanche Lincoln from the Senate Agriculture Committee and Senator Christopher Dodd from the Senate Banking Committee.
In general, the conference committee is not to likely to add new items to the legislation, but will choose between the provisions of either the House or Senate versions.
Once the legislation is agreed upon, it will be passed to the President
for his signature, if he decides not to Veto it.
3. How will the new law potentially control the supervision of Systemic Risk?
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The bill would establish an oversight committee under the Federal Reserve or alternatively an independent Financial Stability Oversight Council.
The council would generally increase prudential standards for systemically significant financial companies, including heightened risk-based capital requirements, leverage limits, liquidity requirements, credit exposure limits, enhanced risk management requirements, and living wills.
To learn more about this rule, visit the Systemic Risk Supervision.
4. How will the new law potentially change Over-The-Counter (OTC) Derivatives Regulation?
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It is likely that the bill would require swaps dealers and major swap participants to be regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The bill would also require derivatives eligible for clearing must generally be cleared and traded through an exchange unless one of the parties to the swap is an end-user that is hedging commercial risk.
Their is also the controversial "push-out" provision. This provision states that no federal assistance i.e. Taxpayers money (including Federal Reserve loans or Federal Deposit Insurance Corporation (FDIC) insurance) may be given to any swaps entity, which includes a swap dealer.
This would likely prevent a bank from being a swap dealer because
banks cannot, in practice, give up the right to receive Federal Reserve
loans or FDIC insurance. The House bill does not include the push-out
provision, so it is not clear what will happen when the House and
Senate bills are reconciled to form the new law.
To learn more about this rule, visit the OTC Trading Changes.
5. How will the new bill deal with institutions deemed to be 'too big to fail'?
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The house and Senate versions establish a new resolution mechanism designed to minimize the "too big to fail" problem. The Senate has dropped its proposal to create a $50 billion prefunded pool to pay for resolutions