Detailed Summary of Senate Financial Reform Bill

Financial regulatory reform is reaching the legislative end game.  On May 22, 2010, the United States Senate passed the Restoring American Financial Stability Act of 2010 (the “Senate bill”) by a vote of 59 to 39. The Senate bill is the culmination of nearly a year of work by the Senate – including a month of floor debate – all designed to craft a comprehensive financial reform package.  It is heavily influenced by the Obama Administration’s regulatory reform package released last summer as well as the House of Representatives’ Wall Street Reform and Consumer Protection Act (the “House bill”), passed by the House of Representatives on December 11, 2009.

In the coming weeks, the Senate and the House of Representatives will conference, probably televised, and resolve the differences between their bills. Congress is aiming to send a compromise bill to President Obama for his signature by the July 4th holiday weekend. While the Congressional conferees are not yet certain, press reports indicate that the Senate members will include, from the Democratic side of the aisle, Senators Dodd, Johnson, Harkin, Leahy, Lincoln, Reed and Schumer, and, from the Republican side of the aisle, Senators Corker, Chambliss, Crapo, Gregg and Shelby.

House Financial Services Committee Chairman Barney Frank has suggested that the Democratic House conferees be himself and Representatives Gutierrez, Kanjorski, Maloney, Meeks, Moore (KS), Waters and Watt.  The Republican conferees have not yet been reported.

The House and Senate bills represent the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression.  Each bill runs over 1300 pages and contemplates dramatic changes to the regulation of systemically important firms (otherwise known as too big to fail) and provisions for their orderly liquidation outside the Bankruptcy Code, comprehensive regulation of over-the-counter derivatives transactions, prohibitions on proprietary trading by insured depository institutions (the “Volcker Rule”), new regulation of payment, clearance and settlement systems, changes to broker-dealer regulation and investor protection, updated executive compensation laws, provisions for private fund registration and regulation, alterations to the regulation of credit rating agencies and the creation of new regulatory bodies and shakeup of existing ones, among numerous other topics.  It is not yet appreciated by many that legislative reform contains, embedded in each of its topics, an agenda for rulemaking and regulatory implementation that will occupy many in the coming days, months and years.

The Davis Polk team has prepared a summary of the Senate bill linked here.  For those who have been following the legislative process more carefully, we have also produced a blackline memorandum linked here that provides a way to visualize the major changes between the Senate bill as passed with the version reported out of the Senate Banking Committee.  As the conference process begins, you may also find our memorandum on the House bill dated December 15, 2009, linked here, useful in determining the major points of contention that remain.

We hope these tools will be useful, both during conference and, when comprehensive regulatory reform is enacted into law, during the long road of agency rulemaking and institutional implementation that is sure to follow.