Financial Crisis Fallout: Legislative

g and Regulatory
g y Action
Prepared for the Third Circuit Judicial Conference

Donald S. Bernstein
Davis Polk & Wardwell
April 2009
Financial Crisis Fallout: Legislative and Regulatory Action

f Federal Assistance Initiatives

f Current Legislative Proposals

f On the Horizon: Possible Upcoming Initiatives

2
Overview of Troubled Assets Relief Program (TARP)

f Approved by Congress in October 2008, the Emergency Economic

Stabilization Act authorized Treasury access to $700 Bn
ƒ The first $350 Bn of the funds (TARP I) were released to the Bush administration in October 2008

ƒ The remaining $350 Bn (TARP II) were released to the Obama administration in January 2009

f TARP I programs included:

i l d d
ƒ The Capital Purchase Program (CPP)

ƒ The Systematically Significant Failing Institutions Program (SSFIP), used for AIG

ƒ The Targeted Investment Program (TIP), used for Citigroup and Bank of America

ƒ The Automotive Industry Financing Program, used for General Motors and Chrysler

ƒ The Term Asset-Backed Lending Facility (TALF), done in conjunction with the New York Federal
Reserve

3
TARP II- The Financial Stability Plan

f Thus far, TARP II programs include:

ƒ Capital Assistance Program (CAP) and associated stress testing

ƒ Preferred to common equity conversion for Citigroup

ƒ Public-Private Investment Program (PPIP)

f Other Government Relief Programs

ƒ FDIC
– Temporary increase in deposit insurance to $250,000
– Temporary Liquidity Guarantee Program (TLGP)
• Transaction Account Guarantee
• Debt Guarantee Program
ƒ Federal Reserve
– Primary Dealer Credit Facility (PDCF)
– Term Auction Facility (TAF)
– Temporary Securities Lending Facility (TSLF)
– Commercial Paper Funding Facility (CPFF)
– Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
– Money
o ey Market
a et Investor
esto Funding
u d g Facility
ac ty ((MMIFF))
Federal Assistance Initiatives ($Bn)

21
30
97.6
310
1250
241 125

200

269 Total Spent:

200 ~$2.5 trillion
200
7

1000
1000

600 500
Federal Reserve
Treasury PPIP
FDIC
C di
Coordinated
d

5
Overview of Obama Administration Proposals

f Capital Assistance Program (CAP), with associated stress testing and

balance sheet transparency initiatives
ƒ Status: Several major banks have undergone mandatory stress testing and some are now
contemplating repaying funds received under TARP I. Results of the tests will be released on May 4 -
after first quarter earnings reports - and regulators will publish a report on April 24 detailing their
testing methods. The Obama administration has said that strong banks may be able to repay funds
“only if such a move passes a test to determine whether it is in the national economic interest.”
(Financial Times, 4/20/2009)

f Public-Private Investment Program (PPIP)

ƒ Status: Treasury announced more details on PPIP on March 23, 2009, which includes a securities
purchase program, designed to remedy the illiquidity in the secondary markets for certain mortgage-
backed securities, and a loan purchase program, designed to create a market for troubled loans on
bank and thrift balance sheets. The FDIC will administer “toxic asset” auctions and is expected to
release details of the auction process soon. The Special Inspector General for TARP notes that there
are fraud and money laundering concerns with the new programs that will need to be addressed
(SIGTarp Quarterly Report to Congress, April 21, 2009)

f “A New Era of Transparency, Accountability, Monitoring and Conditions”

ƒ Status: Embedded in various proposals, including Treasury’s proposal for regulatory restructuring.

6
Overview of Obama Administration Proposals (cont.)

f Consumer and Business Lending Initiative (CBLI)

ƒ Status: As announced on March 3, 2009, the CBLI is being executed under the first stage of the
Federal Reserve
Reserve’s
s Term Asset
Asset-Backed
Backed Loan Facility (TALF)
(TALF). In the first round of TALF financing
(March 17-19), $4.7 Bn of TALF loans were requested.

f Homeowner Affordability & Stability Plan

ƒ Status: President Obama announced the details of this $275 Bn plan on February 18, 2009, which
includes $75 Bn to be spent on mortgage modifications according to guidelines announced on March
4, 2009, relaxed Fannie Mae and Freddie Mac restrictions on refinancing of “underwater” mortgages
and an additional $200 Bn for Treasury’s existing GSE backstop.

f Small Business & Community Lending Initiative

ƒ Status: As announced on March 16, 2009, the SBI will purchase up to $15 billion in securities backed
by SBA loans.
loans
Overview of Obama Administration Proposals (cont.)

f Obama’s Plan for Regulatory Restructuring

ƒ Status: Recent proposal focuses first on systemic risk regulation with details on the
remaining prongs to come.

ƒ Systemic Risk Regulation

– A single independent regulator with responsibility over systematically important firms and critical
payment and settlement systems, including a prompt corrective action regime
– Higher standards on capital and risk management for systematically important firms
– Resolution authority, separate from the Bankruptcy Code, to protect against the failure of
financial institutions that may pose systemic risks
– Regulation of hedge funds and other private funds, including mandatory registration with the SEC
for advisers with assets under management over a certain threshold, disclosure to the SEC of
investors and trading partners and confidential disclosures to the SEC to determine whether a
fund is “systemically important”
– Regulation of credit default swaps (CDS) and other over-the-counter (OTC) derivatives, including
mandatory use of central counterparties for all “standardized” OTC derivatives, encouraging
exchange trading and deeming all OTC dealers as “systemically important” and subjecting them
to capital and other restrictions
– New requirements for money market funds to reduce the risk of rapid withdrawals
ƒ Protecting Consumers & Investors
ƒ Eliminating Gaps in Our Regulatory Structure
ƒ F t i International
Fostering I t ti l Coordination
C di ti

8
Regulatory Restructuring
f Treasury Proposal: Systemic Risk Regulator
ƒ Who will be regulated?

– Consolidated supervision of “systemically important” firms

• Treasury does not provide any specific criteria, but only general factors to consider,
including:

• the financial system’s interdependence with the firm; firm’s size, leverage and
degree of reliance on short-term funding; and the firm’s importance as a source of
credit for households, businesses and governments and, of liquidity for the financial
system

• In
I particular,
ti l all ll dealers
d l iin OTC d
derivative
i ti markets
k t are systemically
t i ll iimportant
t t fi
firms

– “Broad and clear” authority over systemically important payment and settlement systems and
activities

ƒ Who will be the regulator?

– Treasury does not express a view on who ought to be the systemic regulator

– Scope of the systemic risk regulator’s authority

• “Appropriate checks and balances”: the systemic risk regulator should consult and
coordinate with the existing federal regulators

• It should have primary authority to supervise, examine and set prudential standards for at
least certain systemically important firms
ƒ Other legislative proposals: HR 1754 and S 664 both would create a financial stability council to
regulate systemically important institutions
9
Regulatory Restructuring (cont.)

f Resolution authority over systemically important financial companies

ƒ Currently, there is no single uniform Federal law governing the restructuring or liquidation of diversified
US financial g
groups
p such as AIG
ƒ Would cover financial institutions that may pose systemic risks
– Bank or thrift holding companies, holding companies of an SEC-registered broker-dealer, an
insurance company or a futures commission merchant or commodity pool operator and certain
subsidiaries
ƒ Systemic risk determination
– Positive recommendations by the Federal Reserve Board and the appropriate federal regulatory
agency, such as the FDIC, the SEC or the CFTC
– Treasury,
T in
i consultation
lt ti with
ith th
the P
President,
id t would
ld make
k a ttriggering
i i d determination
t i ti
ƒ The FDIC, with the approval of Treasury, may provide a covered financial company with various forms
of financial assistance or put it into conservatorship or receivership
ƒ Modeled on the statutory framework of the Federal Deposit Insurance Act, the FDIC, as conservator
or receiver,
i h
has b
broad
d powers, iincluding
l di ththe power tto:
– sell or transfer assets or liabilities of the company;
– renegotiate or repudiate the company’s “burdensome” contracts; and
– replace the board of directors and senior officers of the company
company.
ƒ Funding mechanism
– Automatic appropriation to the FDIC from the general funds of Treasury and a scheme of special
assessment on all financial companies to recoup the expenditures Status: Hearing before the
House Financial Services Committee
Committee, Frank and Dodd promise action by end of 2009
2009.
ƒ Status: Barney Frank has promised combined legislation creating the resolution authority and
systemic risk regulator by the end of 2009
Treasury Initiatives: Glossary

f Automotive Industry Financing Program (Auto)

ƒ The objective of this program is to prevent a significant disruption of the American automotive industry
and auto supplier industry that pose a systemic risk to financial market stability and will have a
negative effect on the real economy of the United States. The program required both General Motors
and Chrysler to submit restructuring proposals in return for TARP funds.

f Capital Assistance Program (CAP)

ƒ A financial institution that has undergone a comprehensive “stress test” will have access to a Treasury
provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private
capital. Firms will receive a preferred security investment from Treasury in convertible securities that
they can convert into common equity if needed to preserve lending in a worse
worse-than-expected
than expected
economic environment.

ƒ Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital
from the CAP after a supervisory review.

f Capital Purchase Program (CPP)

ƒ Capital injection of up to $250 Bn in eligible institutions in exchange for preferred stock. The first $125
b was earmarked
bn k d ffor nine
i systemically
t i ll iimportantt t fifinancial
i l iinstitutions
tit ti whose
h participation
ti i ti was
effectively mandatory.

ƒ To date, $197 Bn has been invested in 511 institutions (Wall Street Journal, March 23, 2009)

11
Treasury Initiatives: Glossary (cont.)

f Systematically Significant Failing Institutions Program (SSFIP)

ƒ Unlike the broad-based Capital Purchase Program (CPP), financial Institutions (as defined in EESA)
will be considered for participation in the SSFI Program on a case-by-case basis. The primary
objective of this program is to provide stability and prevent disruption to financial markets in order to
limit the impact on the economy and protect American jobs, savings and retirement security from the
failure of a systemically significant institution.

ƒ To date, only AIG has participated in this program.

f Targeted Investment Program (TIP)

ƒ Capital injections in important financial institutions to foster financial market stability.

ƒ To date, only Bank of America and Citigroup have participated in this program.
Federal Reserve Initiatives: Glossary

f Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity

Facility (AMLF)
ƒ Under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the
Federal Reserve makes non-recourse loans to eligible institutions to finance their purchases of high-
quality asset-backed commercial paper from money market mutual funds.

f Commercial Paper Funding Facility (CPFF)

ƒ The Federal Reserve created the Commercial Paper Funding Facility (CPFF) to provide a liquidity
backstopp to U.S. issuers of commercial p
paper.
p The CPFF is intended to improve p liquidity
q y in short-term
funding markets and thereby contribute to greater availability of credit for businesses and households.

ƒ Under the CPFF, the Federal Reserve Bank of New York will finance the purchase of highly-rated
unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers.

f Purchases from Government Sponsored Enterprises (GSE debt & GSE

MBS)
ƒ The Federal Reserve is purchasing up to $200 Bn in direct obligations of Fannie Mae, Freddie Mac
and the Federal Home Loan Banks to reduce the cost and increase the availability of credit for the
purchase of houses and purchasing up to $1.25 trillion in mortgage-backed securities backed by
Fannie Mae, Freddie Mac and Ginny Mae, to be conducted by asset managers.
Federal Reserve Initiatives: Glossary (cont.)

f Primary Dealer Credit Facility (PDCF)

ƒ The Primary Dealer Credit Facility (PDCF) is an overnight loan facility that provides funding to primary
dealers in exchange for a specified range of eligible collateral and is intended to foster the functioning
of financial markets more generally.

f Term Asset-Backed Securities Loan Facility (TALF)

ƒ The Federal Reserve created the Term Asset-Backed Securities Loan Facility (TALF) to help market
participants meet the credit needs of households and small businesses by supporting the issuance of
asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans and loans
guaranteed by the Small Business Administration (SBA).

f Term Auction Facility (TAF)

ƒ The Term Auction Facility allows a depository institution to place a bid for an advance from its local
Federal Reserve Bank at an interest rate that is determined as the result of an auction for a term up to
three months.

f Term Securities Lending Facility (TSLF)

ƒ Provides Treasury general collateral financing through the Term Securities Lending Facility (TSLF)
and TSLF Options Program (TOP) to promote liquidity in Treasury and other collateral markets and
thus foster the functioning of financial markets more generally.
FDIC Initiatives: Glossary

f Temporary Liquidity Guarantee Program (TLGP)

ƒ Debt Guarantee. Guarantee of certain senior unsecured debt issued by participating institutions.

ƒ Transaction Account Guarantee. In addition to the increase in deposit insurance, the FDIC also
introduced a transaction account guarantee under the Temporary Liquidity Guarantee Program to
provide full deposit insurance coverage for certain deposit transaction accounts regardless of the
dollar amount.

15
Coordinated Initiatives: Glossary

f AIG
ƒ Non-recourse loan and other Fed assistance to fund purchase of residential mortgage-backed
securities from Air's
Air s U
U.S.
S securities lending collateral portfolio and to fund the purchase of multi-sector
collateralized debt obligations on which AIG has written credit default swap contracts.

f Public-Private Investment Program (PPIP)

ƒ Working together in partnership with the FDIC and the Federal Reserve, Treasury has initiated a
Public-Private Investment Program that takes a new approach to removing toxic assets from financial
institutions’ balance sheets.

ƒ This new program is designed with a public

public-private
private financing component,
component which involves putting public
or private capital side-by-side and using public financing to leverage private capital on an initial scale
of up to $500 billion, with the potential to expand up to $1 trillion.
Financial Crisis Fallout: Legislative and Regulatory Action

f Federal Assistance Initiatives

f Current Legislative Proposals

f On the Horizon: Possible Upcoming Initiatives

17
Housing / Foreclosure Relief

f Bankruptcy Cramdown
ƒ “Cramdown” = judicial modification of mortgage terms in bankruptcy court
ƒ Key bill: H.R.
H R 1106 (Helping Families Save Their Homes Act)
– Amends Chapter 13 of the federal Bankruptcy Code (adjustment of debts of an individual with
regular income)
– Excludes from computation of debts the secured or unsecured portions of: (1) debts secured by
the debtor's principal residence if the value of the residence as of the date of the order for relief is
less than the applicable maximum amount of noncontingent, liquidated, secured debts; or (2)
debts secured or formerly secured by the debtor's principal residence that was either sold in
foreclosure or surrendered to the creditor, if the property's value as of the date of the order for
relief was also less than the applicable maximum amount of noncontingent, liquidated, secured
debts.
debts
– H.R. 1106 also contains language to codify other portions of President Obama’s Homeowner
Affordability & Stability Plan.
ƒ Status: Passed the House on March 5, 2009, but currently stalled in the Senate. “Senate Democrats
are scaling back legislation that would let bankruptcy judges alter mortgage terms because lawmakers
don’t have enough votes for passage, a spokesman for Senate Majority Whip Richard Durbin said.”
(Bloomberg, April 16, 2009)
ƒ Comments
– P
President
id t ObObama endorsed
d db
bankruptcy
k t cramdowns
d b
by iincluding
l di a provision
i i ffor jjudicial
di i l
modification of home mortgages during bankruptcy in his Homeowner Affordability & Stability
Plan, but such a provision would require Congressional approval.
– Senators Richard Durbin and Charles Schumer, key proponents of the legislation, are reportedly
in d
discussions
scuss o s with industry
dus y representatives
ep ese a es whooa
are
e lobbying
obby g to
o limit the
e scope oof ccramdowns.
a do s
(Washington Post, 3/13/09)

18
Housing / Foreclosure Relief (cont.)

f Mortgage Modifications
ƒ Treasury released the guidelines for mortgage modifications contemplated under President Obama’s
Homeowner Affordability & Stability Plan on March 4, 4 2009.
2009

– Guidelines include temporary reduction of interest rates, lengthened payment periods and other
modifications designed to bring monthly payments down to a housing-to-income ratio of 31%,
which may result from a combination of servicer modifications and government funding. The
guidelines also include various financial incentives for servicers to participate and borrowers to
make timely payments.

– Status: H.R. 1106 (Helping Families Save Their Homes Act) attempts to codify aspects of the
Obama plan, but is currently stalled in the Senate Banking Committee. Portions that do not
req ire Congressional Approval
require Appro al are ccurrently
rrentl underway.
nder a

ƒ Servicer Safe Harbor?

– A key concern for mortgage servicers is the potential for lawsuits by securitization investors and
b k arising
banks i i ffrom modification
difi ti off mortgage
t tterms according
di tto T
Treasury guidelines.
id li

– Although the Obama plan did not include such a provision, H.R. 1106 includes a servicer safe
harbor in line with previously proposed legislation. The H.R. 1106 servicer safe harbor (i)
insulates servicers from any liability they may otherwise have to securitization investors and (ii)
invalidates contractual provisions between a servicer and any securitization vehicle or investor
that would limit the servicer’s ability to modify mortgages or require the servicer to repurchase
loans or otherwise compensate the securitization vehicle on account of any modification, workout
or loss mitigation plan. This safe harbor would only apply if the servicer complied with Treasury’s
guidelines and would not apply to modifications made after January 1, 2012.

19
Housing / Foreclosure Relief (cont.)

f Mortgage Modifications (cont.)

ƒ The Congressional Oversight Panel claimed that because of inadequate data on mortgage
modifications, “legislators, regulators and market participants are flying blind”

– “The Obama housing plan and other programs designed to stem the foreclosure crisis will likely
be impeded by a lack of hard data on rising mortgage defaults and why prior loan modifications
have not been working
working…. No federal agency has the ability to track delinquencies
delinquencies, foreclosures
and loan workout efforts for the entire U.S. mortgage market…. Existing data is plagued by
inconsistent collection and reporting methodologies among government agencies and is often
times simply unverifiable." (Congressional Oversight Panel, “Foreclosure Crisis: Working Toward
a Solution,” March 6, 2009)
Housing / Foreclosure Relief (cont.)

f Mortgage Lending Reform

ƒ Key Bill: H.R. 1728 (The Mortgage and Anti-Predatory Lending Act of 2009)

– H.R. 1728 aims to amend the Truth in Lending Act to reform consumer mortgage practices and
provide accountability for such practices, to provide certain minimum standards for consumer
mortgage loans and for other purposes, through various measures including: (i) requiring lenders
to retain 5% of the credit risk on subprime loans that are securitized; (ii) addressing mortgage
broker compensation issues by banning certain types of yield
yield-spread
spread premium (YSP) payments
payments,
i.e., compensation based on a loan’s interest rate and terms; (iii) requiring proof of net tangible
benefit for any refinancing and (iv) subjecting licensed and registered mortgage originators to a
federal duty of care, obligating them to only make loans the customer can afford.

ƒ Status:
St t U d debate
Under d b t – referred
f d to
t the
th House
H Financial
Fi i lS
Services
i C
Committee.
itt H
Hearing
i may b be h
held
ld
before proceeding to mark-up and vote. The bill is co-sponsored by Representatives Barney Frank,
Brad Miller and Mel Watt.

– H.R. 1728 is reportedly “a tougher version of the anti-predatory lending measure that passed the
H
House iin 2007
2007, b
butt stalled
t ll d iin th
the S
Senate.”
t ” (B
(Banking
ki D Daily,
il 3/27/09) N
No relevant
l tSSenate
t version
i
of the bill has been introduced to date.

ƒ State Legislators

– The Washington Post reports “state legislators concerned with [unethical] behavior by mortgage
brokers have approved regulations to crack down on the industry this year.” Legislators
expressed a concern that “a lot of people were getting into foreclosures because they had dealt
with unethical brokers who had steered them into high risk loans.” (Washington Post, 3/5/09)

21
Housing / Foreclosure Relief (cont.)
f Mortgage Lending Reform (cont.)
ƒ Comments
– Comptroller of the Currency John Dugan “call[ed] for a national standard for all mortgages” and
said “[r]ather than having 50 new state laws address mortgage lending practices, Congress
should enact a single uniform standard that applies to all mortgages in the country, wherever
they are originated. And that law should require effective and comparable enforcement by
g
federal and state regulators,, even where originators
g are not banks.” ((New York Times Op-Ed,
p ,
3/15/09)

– Sandra Braunstein, a representative of the Federal Reserve testifying before the House Financial
Services Committee on March 11, 2009, supported mortgage lending reform but said “[t]he
Fed…believes the establishment of clearly defined safe harbors may be appropriate in
implementing the law and that the statute should clarify that the rule
rule-writing
writing agency has sufficient
flexibility for this purpose.” She reportedly also “urged House lawmakers…to carefully tailor
legislation to avoid redundancies with HOEPA [the Home Ownership and Equity Protection Act
regulations scheduled to take effect in fall 2009].” (Banking Daily, 3/27/09)

– The Congressional Oversight Panel strongly recommended mortgage lending reform and
claimed that “[f]airness should have been addressed though better regulation of consumer
financial products. If the excesses in mortgage lending had been curbed by even the most
minimal consumer protection laws, the loans that were fed into the mortgage backed securities
would have been choked off at the source and there would have been no “toxic assets” to
threaten the global economy.” (Congressional Oversight Panel, “Modernizing the American
Financial Regulatory System: Recommendations for Improving Oversight,
Oversight Protecting
Consumers and Ensuring Stability,” January 2009)

– Fed Governor Elizabeth Duke: “While the expansion of the subprime mortgage market over the
past decade increased consumers' access to credit, too many homeowners and communities are
g today
suffering y because of lax underwriting
g standards and other unfair or deceptive
p p
practices that
resulted in unsustainable loans.” (Testimony before the House Financial Services Committee,
3/20/09)
Consumer Protection

f “Protecting Consumers and Investors” is one element of Treasury’s

proposal for regulatory reform
ƒ In the wake of escalating reports of subprime mortgage and credit card predatory abuse, consumer
and investor protection is a key area of focus for regulators and the political climate supports
significant regulatory reform in this arena

ƒ Representative Barney Frank (Chairman of the House Financial Services Committee) – Determined to
“bring back, strengthen and quickly pass through the House reforms that failed to reach enactment in
the last Congress that would beef up consumer protections in areas like mortgage lending, credit
cards and overdraft.” (American Banker, 3/6/09)

ƒ SEC Commissioner Mary Schapiro – “[F]ocus on investor protection and securities regulation as part
of a reconsideration of the financial regulatory regime is timely and critically important…. If there were
ever a time when investors need and deserve a strong voice and a forceful advocate in the federal
government, that time is now. Individual investors may not be the strongest political force…. These
investors expect and deserve a strong and independent regulator dedicated to providing for fair
financial dealings, timely and meaningful disclosure of information and protection from unscrupulous
actors.” (Testimony before the Senate Banking Committee, 3/26/09)

ƒ Other supporters of consumer protection reform include Federal Reserve Chairman Ben Bernanke
Bernanke,
FDIC Chairman Sheila Bair, Senator Christopher Dodd and Michael Barr of the White House National
Economic Council

23
Consumer Protection (cont.)

f Ongoing tension between federal and state regulators

ƒ The Congressional Oversight Panel recommended “eliminating federal pre-emption of application of
state consumer laws to national banks.” (Congressional Oversight Panel, “Modernizing the American
Financial Regulatory System: Recommendations for Improving Oversight, Protecting Consumers and
Ensuring Stability,” January 2009) However, reportedly Solicitor General Elena Kagan recently filed a
brief urging the Supreme Court “to bar…states from enforcing their fair-lending and other consumer-
protection laws against federally chartered banks
banks.” (Bloomberg,
(Bloomberg 3/26/09)

ƒ 50 state attorneys general sent a letter to President Obama asking the administration to restore states’
authority to regulate national bank lending, credit cards and banking rules. (Banking Daily, 3/17/09)

ƒ Comptroller
C ll off the
h CCurrency JJohn
h DDugan h
has supported
d ffederal
d l mortgage llending
di fforms, ““rather
h than
h
having 50 new state laws.” (New York Times Op-Ed, 3/15/09)

ƒ FDIC Chairman Sheila Bair has encouraged federal cooperation with state attorneys general, saying
that “[i]f
[i]f ever there were a time for the states and the ‘feds’
feds to work together, that time is right here,
right now. The last thing we need is to preempt each other.” (Speech before the National Association
of Attorneys General, 3/3/09)

24
Consumer Protection (cont.)
f Financial Product Safety Regulator
ƒ Key Bill: S.566 (Financial Product Safety Commission Act)
– Modeled after Consumer Safety Product Commission. Establishes the Financial Products Safety
Commission to: (1) promulgate consumer financial product safety rules; (2) establish a best
practices guide for all providers of consumer financial products; (3) conduct continuing studies
and investigations of consumer financial products industry practices; (4) award grants or enter
into contracts for the conduct of such studies and investigations; (5) assist public and private
organizations or groups of consumer financial product providers, administratively and technically,
in the development of safety standards or guidelines that would assist them in complying with
any Commission rule; (6) comment on selected agency rulemakings affecting consumer financial
products; and (7) establish a consumer financial product customer hotline.
ƒ Status:
– Referred to Senate Banking
g Committee. Introduced by
y Senator Richard Durbin and co-
sponsored by Senators Charles Schumer and Ted Kennedy.
– Companion bill (H.R. 1705) referred to House Financial Services Committee. Introduced by
Representative Bill Delahunt and co-sponsored by Representative Brad Miller.
ƒ Comments
– When asked, Treasury Secretary Geithner said the concept of a financial product regulator was
“interesting” but did not take a position in his Congressional testimony on regulatory
restructuring. (Testimony before the House Financial Services Committee, 3/26/09)
– The Congressional Oversight Panel recommended “creat[ing] a single federal regulator for
consumer
co su e ccredit
ed t p
products,”
oducts, arguing
a gu g that
t at “[w]ithout
[ ] t out a uniform
u o set of
o minimumu standards,
sta da ds, regulatory
egu ato y
arbitrage among state—and federal—regulators will continue. and no regulator or agency will
have the authority and responsibility to protect consumers.” The Panel suggested that such a
regulator could be an independent agency or placed within the Federal Reserve. (Congressional
Oversight Panel, “Modernizing the American Financial Regulatory System: Recommendations
for Improving Oversight, Protecting Consumers and Ensuring Stability,” January 2009)

25
Consumer Protection (cont.)

f Credit Cards
ƒ Regulatory action by Federal Reserve, Office of Thrift Supervision (OTS) and the National Credit
Union Administration (NCUA)

– On December 18, 2008, the agencies jointly released rules under the Federal Trade Commission
(FTC) Act to prohibit unfair and deceptive practices in credit card lending, including a rule that
bars credit card issuers from raising interest rates during the first year of the account unless the
potential rate hike or the fact that the APR is tied to an index was disclosed when the account
was opened, cardholder is 30 days delinquent or the cardholder fails to honor a workout
arrangement. The rules would also define common practices such as double-billing and
universal default as “unfair” or “deceptive.”

– Th
The Federal
F d l Reserve
R also
l released
l d a rule
l under
d the
th Truth
T th iin L
Lending
di A Actt (TILA) th
thatt requires
i
greater disclosure by credit card issuers regarding the true terms and costs of the accounts.

– Status: Effective July 2010 and not retroactive in effect.

ƒ H.R. 627 (Credit

(C C
Card Holders Bill off Rights Act off 2009))

– Amends TILA to establish fair and transparent practices relating to the extension of credit under
an open end consumer credit plan, including various limits on marketing & billing practices.

– Status: Passed in the House Financial Services Committee (4/22). Proceeding to House vote
next week. Sponsored by Representative Carolyn Maloney, with 81 co-sponsors.

26
Consumer Protection (cont.)

f Credit Cards (cont.)

ƒ S.414 (Credit Card Accountability, Responsibility & Disclosure Act)
– Amends the Consumer Credit Protection Act, to ban abusive credit practices, enhance consumer
disclosures, protect underage consumers. Proposed protections include (i) protection of
consumers from “any time, any reason” interest rate increases and account changes; (ii)
prohibition of unfair application of card payments; (iii) protection of cardholders who pay on time;
(iv) limitations on fees and penalties
penalties, including a ban on charging interest on fees
fees, a prohibition
on fees to pay bills and a restriction on over-the-limit charges; (v) ensuring that cardholders are
informed of the terms of their account; and (vi) protects young consumers from credit card
solicitations.
– Status: Passed in the Senate Banking Committee
Committee. Sponsored by Senator Christopher Dodd
Dodd,
with 18 co-sponsors.
ƒ Comments
– Obama is scheduled to meet with the credit card divisions at 14 major banks to tell them to
supportt the
th legislation
l i l ti tto curbb llending
di abuses
b and
d tto crack
kddown on suchh practices
ti as arbitrarily
bit il
raising interest rates on existing balances, charging late fees without enough time given and
charging interest on debt that was paid on time. (Washington Post, April 21, 2009)
– Congressional Oversight Panel: “Although mortgage documents include a raft of legally-required
di l
disclosures, th
those di
disclosures
l are a llong way ffrom a meaningful
i f l understanding
d t di off ththe lloan
transaction—and a much longer distance from supporting competitive markets. Many of the
same points can be made for credit cards and other consumer financial products. In all of these
cases consumers have little access to the key information they need to make responsible
decisions. The result is a market in which p people
p fail to assess risks p
properly,
p y, over-pay
p y and gget
into financial trouble.” (Congressional Oversight Panel, “Modernizing the American Financial
Regulatory System: Recommendations for Improving Oversight, Protecting Consumers and
Ensuring Stability,” January 2009)
27
Consumer Protection (cont.)

f Other Consumer Protection Measures

ƒ S.257 (Consumer Credit Fairness Act)
– Amends Title 11 of the United States Code (the Bankruptcy Code) to disallow certain claims
resulting from high cost credit debts. Offers Chapter 7 access to consumers forced into
bankruptcy by high interest loans, exempts consumers with any debts that have excessive rates
from the means test requirement and makes all such consumers eligible for discharge of their
debt under Chapter 7. Targets a wide spectrum of abusive consumer loans, including credit card
agreements payday loans,
agreements, loans car loans,
loans overdraft loans and layaway plans
plans. Sets a reasonable and
self-adjusting definition of “high interest rate” as anything higher than 15% plus the current yield
on the 30-year Treasury bond. Prevents lenders from instituting back-door interest rates by
including disclosure of an “applicable interest rate” that includes an annualized calculation of all
penalty fees and charges.
– Status: Referred to the Senate Committee on the Judiciary. Sponsored by Senator Sheldon
Whitehouse and co-sponsored by Senators Richard Durbin and Bernard Sanders.
– Comments:
• Senator Durbin: “Poor ppeople
p have a life sentence [[with credit card debt that]] theyy can
never get out from under…Credit card companies have gone way too far because we have
not been watching.” (Banking Daily, 3/25/09)
• American Bankers Association: “The market response would be simply to restrict credit,
raise interest and fees or both.” (Washington Post, 3/24/09)
ƒ H.R. 1214 (Payday Loan Reform Act of 2009)
– Amends the Truth in Lending Act to establish additional payday loan disclosure requirements and
other protections for consumers
– Status: Referred to the House Financial Services Committee. Sponsored
p by
y Representative
p
Luis Gutierrez with 16 cosponsors.
Consumer Protection (cont.)

f Other Consumer Protection Measures (cont.)

ƒ Proposed interest rate ceilings
– S.582
S 582 (Interest Rate Reduction Act)
• Amends TILA to protect consumers from usury, including a national annual percentage rate
of interest ceiling applicable to any extension of credit not to exceed 15% on unpaid
balances, inclusive of all finance charges. Imposes penalties for charging higher rates.
• Status: Referred to Senate Banking Committee.
Committee Sponsored by Senator Sheldon
Whitehouse with 5 co-sponsors.
– S. 500 (Protecting Consumers from Unreasonable Credit Rates Act of 2009)
• Amends TILA to establish a national usury rate for consumer credit transactions.
M d t th
Mandates thatt no creditor
dit may make
k an extension
t i off credit
dit with
ith respectt tto which
hi h th
the ffee
and interest rate exceeds 36%.
• Status: Referred to Senate Banking Committee. Sponsored by Senator Richard Durbin
and co-sponsored by Senator Sheldon Whitehouse.
ƒ H R 1456 (Consumer
H.R. (C O
Overdraft
d ft Protection
P t ti Fair
F i Practices
P ti Act)
A t)
– Extends TILA protections to overdraft protection programs and services provided by depository
institutions, to require customer consent before a depository institution may initiate overdraft
protection services and fees, to enhance the information made available to consumers relating to
overdraft protection services and fees, to prohibit systematic manipulation in the posting of
checks and other debits to a depository account for the purpose of generating overdraft
protection fees and for other purposes.
– Status: House Financial Services Subcommittee on Financial Institutions and Consumer Credit
hearings held. Sponsored by Representative Carolyn Maloney, with 7 co-sponsors including
R
Representative
t ti BBrad
d Mill
Miller.

29
Financial Fraud
f A focal point for legislators and regulators alike in light of the Madoff scandal and
potential for TARP-related fraud
ƒ SEC: “WeWe have a number of people who are now taking the certified fraud examiner programprogram, as well
as, enhancing dramatically our internal training programs. And we are actively seeking new skill sets,
including in financial analysis fronts, like accounting, trading and other areas, so that we are better
able to keep up with what's going on and what the fraudsters are up to.”

ƒ House Financial Services Committee Chairman Barney Frank: “Perhaps most importantly, the
A
American
i public
bli h
has th
the right
i ht tto kknow what
h t enforcement
f t actions
ti are contemplated
t l t d against
i t th
those
irresponsible and, in some cases, criminal actions that lead to the current situation.” (Press Release,
3/5/09)

ƒ SIGTARP (Special Inspector General of TARP) Neil Barofsky: “We’re looking at a potential $300
billion in fraud [related to TARP]
TARP], in these days not an unrealistic number
number...II do have subpoena
authority if I need it.” (Banking Daily, 3/6/09)

ƒ Rita Glavin, Acting Attorney General for the Criminal Division of the Department of Justice: “The
department is well aware that when large investments of taxpayer money are doled out over a short
period of time, p
p people
p will try
y to exploit
p the system
y and criminally
ypprofit.” ((Testimony
y before the
Financial Services Committee Hearing 3/20/09 as reported by Reuters)

f S.386 (Fraud Enforcement and Recovery Act of 2009)

ƒ Improves enforcement of mortgage fraud,
fraud securities fraud,
fraud financial institution fraud and other frauds
related to federal assistance and relief programs, for the recovery of funds lost to these frauds.

ƒ Status: Introduced to Senate Committee on the Judiciary. Sponsored by Senator Patrick Leahy with
4 co-sponsors.

30
Financial Fraud (cont.)

f Mortgage Fraud
ƒ Mortgage fraud jumped by 26% in 2008, despite the fact fewer loans were issued (Mortgage Asset
Research Institute)

ƒ Coordinated Effort to Target Mortgage Loan Modification Fraud and Foreclosure Rescue Scams

– Joint effort amongst Treasury, DoJ, HUD, Federal Trade Commission and Attorney General of
Illinois, as well as state and local governments and private sector to protect homeowners seeking
assistance

– Effort is supposed to coordinate information and resources to maximize targeting and efficiency
in fraud investigations
investigations, alert financial institutions to emerging schemes
schemes, increase enforcement
actions and educate consumers

– Initiative will encourage state and federal coordination in battling foreclosure scams and fraud
through civil enforcement cases, state enforcement actions, and alerts to financial institutions
ƒ H.R. 1106 (“Helping Families Save Their Homes Act”)
– Included a provision for a “Nationwide Mortgage Fraud Taskforce,” to be staffed by the Attorney
General.
– Status:
St t Passed
P d in
i the
th House,
H currently
tl stalled
t ll d in
i the
th S
Senate
t Banking
B ki C Committee.
itt

31
Financial Fraud (cont.)

f Mortgage Fraud (cont.)

ƒ Responsible Homeowners Act
– Reportedly will include a provision to “[d]irect the FBI, Department of Justice, FHA and other
government housing agencies to step up efforts to combat mortgage fraud and authorize
additional resources to investigate and prosecute such cases” (Press Release by Representative
Eric Cantor)
– Status: To be introduced to the House by House Minority Whip Eric Cantor.
ƒ H.R. 1105 (Omnibus Appropriations Act)
– Section 626 of the Omnibus Appropriations Act directs the Federal Trade Commission (FTC) to
initiate a rulemaking proceeding with respect to mortgage loans and grants state attorney
generals new authority to enforce any FTC mortgage rules
– Status: Signed into law.
ƒ Comments
– FDIC chairman Sheila Bair said “[c]racking down on mortgage fraud in particular is a safety and
soundness issue for both the banking industry and the housing markets…Mortgage fraud is now
a very big priority for us.” She also said that “[a]s a bank regulator, I see each and every state
attorneys general as an essential partner in answering the call.” (Speech before the National
A
Association
i ti off Attorneys
Att General,
G l 3/3/09)
Executive Compensation

f The Congressional Oversight Panel listed as an action item “Regulators

should consider requiring executive pay contracts to provide for clawbacks
of bonus compensation for executives of failing institutions
institutions.” (Congressional
(C i l
Oversight Panel, “Modernizing the American Financial Regulatory System: Recommendations for
Improving Oversight, Protecting Consumers and Ensuring Stability,” January 2009)

f H.R. 1664 (Grayson

Grayson-Himes
Himes Pay for Performance Act of 2009)
ƒ Restrictions:
– Prohibition on paying:
– “unreasonable
unreasonable or excessive
excessive” compensation,
compensation or
– non-performance-based bonus, retention or other supplemental payments.
– Treasury to establish standards within 30 days of enactment.
ƒ Covered Institutions:
– Institutions with outstanding TARP assistance.
– Fannie Mae and Freddie Mac.
– Federal home loan banks.
– No standard for application to affiliates as yet.
ƒ Covered Individuals: Executives and employees.
ƒ Status: Passed by
y the House on April
p 1,, 2009.

33
Executive Compensation (cont.)

f H.R. 1586 (To Impose an Additional Tax on Bonuses Received from

Certain TARP recipients)
– Imposes a 90% additional income tax on certain compensation paid to employees or former
employees of “covered TARP recipients after December 31, 2008.
– Status: Passed the House on March 19, 2009. Sponsored by Representative Charles Rangel.
– Prospects: appear poor
– Comments
• Harvard Law Professor Laurence Tribe was one of the first experts to go on record that
H.R. 1586 would be constitutional, but later reversed his position saying “I have growing
d bt about
doubts b t the
th constitutionality
tit ti lit off H.R.
H R 1586’s
1586’ 90% AIG b
bonus clawback
l b k ttax…The Th wholeh l
point of the Constitution’s various separation of power previsions – including the bill of
attainder clause – is to make sure that…you don’t have trial by legislature.” (Tax Analysts,
3/24/09)

f S. 651 (Compensation Fairness Act of 2009)

ƒ Amends the Internal Revenue Code to impose an excise tax on excessive bonuses paid by federal
emergency economic assistance recipients to their employees (including directors or officers). Sets
the overall rate of such tax at 70% of the amount of such bonuses, 35% payable by federal
emergency economic assistance recipients and 35% payable by the employees of such recipients.
ƒ Status: Placed on Senate Legislative Calendar under General Orders. Sponsored by Senator Max
Baucus with 11 co-sponsors. Bachus has vowed to move ahead.
Executive Compensation (cont.)

f Obama proposal
ƒ Status: Outlines expected to be unveiled this week.
ƒ Restrictions:
– May impose greater requirements on boards to tie compensation more closely to corporate
performance.
– May permit government to cancel outstanding bonus contracts
contracts.
ƒ Covered Institutions:
– All financial institutions.
– May also be applied to all publicly traded companies
companies.
ƒ Covered Individuals: Unclear.
ƒ Prospects: Unclear.
Executive Compensation (cont.)

f Other Legislation
ƒ Though no one can say for sure, executive compensation restrictions are less likely to follow the
Rangel/Baucus approach of retroactively taxing bonuses and more likely to follow the Frank approach
of prohibiting “unreasonable or excessive” compensation and non-performance bonuses, with
Treasury setting the standards.
ƒ H.R. 1575 (End Government Reimbursement of Excessive Executive Disbursements (End GREED)
Act)
– Authorizes the Attorney General to limit or recover excessive compensation paid or payable by
entities that have received Federal financial assistance on or after September 1, 2008.
– Status: Placed on the Union Calendar; introduced to the House Judiciary Committee.
S
Sponsored by Representative John Conyers
C with 1
14 co-sponsors.
ƒ Comments
– House Financial Services Committee Chairman Barney Frank: “Given the legislative process
and the Administration’s
Administration s desire to get this bill done before the recess to speed funds into the
economy, Congress made a mistake. We have, fortunately, a process for correcting mistakes
which is subsequent legislation. We have now acted very promptly and if this bill passes the
House and the Senate then the mistake will have had no effect.” (HSFC Press Release, 3/26/09)

36
Other Regulatory Restructuring Proposals

f Merger of SEC and CFTC?

ƒ U.S. is the only country that splits the regulation of securities and commodities, despite market
d
developments
l t since
i th
the 1970
1970s th
thatt make
k th
the di
distinction
ti ti artificial
tifi i l

– Concerns that Congressional and regulatory turf battles impede financial innovation

ƒ Key question: Will CFTC become more like SEC, or vice versa?

– CFTC: small, nimble, “principles based,” “responsive” to industry

– SEC: bureaucratic, “rules based,” enforcement-oriented

ƒ Unlikely to occur any time soon,

soon due to continuing turf battles and other concerns

f Merger of OCC and OTS?

ƒ Likely to occur

– Thrift charter guarantees the industry has concentrated exposure to real estate

– OTS has lost credibility during this crisis, e.g. due to developments at AIG and Washington
Mutual

ƒ Obstacle: turf battles and policy to “expand the American dream”

ƒ HR 1754 and S 664 both propose OTS/OCC merger

37
Other Regulatory Restructuring Proposals (cont.)

f Hedge Fund & Investment Adviser Regulation

ƒ Treasury proposal for regulatory reform mandates SEC registration for hedge funds, private equity
firms and venture capitalists with assets under management above a certain threshold and also
subjects them to enhanced disclosure and reporting requirements

– Treasury has left open the possibility that certain hedge fund advisers would be considered
systemically important

ƒ SEC Chairman Mary Schapiro is “considering asking for legislation that would require registration of
investment advisers and possibly the hedge funds themselves.” (Testimony before the Senate
Banking Committee, 3/26/09)

ƒ S.344 (Hedge Fund Transparency Act )

– Requires hedge funds to register with the SEC.

– Status: Referred to Senate Banking Committee. Sponsored by Senator Chuck Grassley and co-
sponsored by Senator Carl Levin.

38
Other Regulatory Restructuring Proposals (cont.)

f Glass-Steagall’s “Specter”
ƒ Comment by Former Fed Chairman Paul Volcker sparked a debate over the potential return of Glass-
Steagall
– Volcker proposed a partial return to Glass-Steagall’s separation of commercial and investment
banking, allowing commercial banks to engage in securities underwriting and M&A but not more
risky activities, such as proprietary trading. (Bloomberg, 3/10/09)
ƒ Goldman CEO Lloyd Blankfein noted that a return to Glass-Steagall would be difficult to resurrect
saying, “its hard to turn back the clock” (Bloomberg, 3/27/09)

f GSE reform
ƒ Potential bill from House Financial Services Committee Chairman Barney Frank
– Frank said he hopes to introduce legislation later this year to restructure government-backed
mortgage investors Fannie Mae and Freddie Mac. “The current model is broken” Frank said in an
interview. One possibility, he said, is to separate the companies into entities serving two
functions: one that would ensure adequate funding for the home-mortgage market as a whole
and another that would provide government subsidies for housing low-income people. (WSJ,
3/18/09)
Other Regulatory Restructuring Proposals (cont.)

f Municipal Bond Regulation

ƒ SEC Chairman Mary Schapiro may request authority to regulate municipal securities
– “It is time for those who buy the municipal securities that are critical to state and local funding
initiatives to have access to the same quality and quantity of information as those who buy
corporate securities. I will lead the [SEC] to continue to focus efforts in this area in 2009.”
(Testimony before the Senate Banking Committee, 3/26/09)
ƒ Major House Bill reportedly in the works
– Reportedly the House Financial Services Committee is drafting a three-pronged bill that would
allow federal guarantees for new muni general obligation debt, create a reinsurance program to
bolster monoline bond insurers underwriting new business and provide a liquidity backstop for
variable-rate
i bl d
demandd obligations.
bli i (B
(Bond
dBBuyer, 3/13/09)
– Reportedly “House Financial Services Committee chairman Barney Frank is exploring the idea of
including a provision…that would require the federal regulation of financial or investment
advisers in the municipal market that are not currently regulated.” (Bond Buyer, 3/18/09)
ƒ H.R. 1669 (Federal Municipal Bond Marketing Support and Securitization Act of 2009)
– Requires the Secretary of the Treasury to establish a market for municipal securities, to require
cooperation between the Secretary and the Chairman of the Board of Governors of the Federal
Reserve System
y in addressing
g the municipal
p securities market situation includingg through
g the
establishment of municipal securities funding facilities and for other purposes.
– Status: Referred to the House Financial Services Committee. Sponsored by Representative
Gerry Connolly.

40
Other Hot Topics

f Credit Rating Agencies

ƒ The SEC has pledged to reform the credit rating agencies. The SEC held a roundtable to examine the
role of credit rating agencies on April 15
15, “where
where much of the attention was focused on ways to
minimize potential conflicts of interest…some participants suggested all firms should switch to the
investor-paid model, while at least one person suggested fees be paid out of the rated bonds’ interest
payments.” (Wall Street Journal, 4/16/2009)

f G-20
G 20 / IInternational
t ti lCCooperation
ti
ƒ Secretary Geithner noted, the need for a more effective “globally coordinated approach to the
resolution of globally active firms” is an imperative. The risk of inaction is that, as Chairman Bair
recently testified, “[i]n this environment, ring-fencing—also known as every man for himself—may
simply be the only rational response.”

f Capital requirements
ƒ Fed delays
y implementation of new capital rules
ƒ Treasury regulatory reform proposals
– Treasury’s proposal calls for more “conservative” and “robust” capital requirements for
systemically important firms than for other financial firms, in order “to be effective in a wider
range of deeply adverse economic scenarios than is typically required
required.” Treasury also suggested
that the capital requirements be “less pro-cyclical” so that systemically important firms build
“substantial” capital buffers during economic upturns to “avoid deleveraging in cyclical
downturns.”
ƒ Dynamic provisioning debate

41
Financial Crisis Fallout: Legislative and Regulatory Action

f Federal Assistance Initiatives

f Current Legislative Proposals

f On the Horizon: Possible Upcoming Initiatives

42
On The Horizon: Possible Upcoming Initiatives

f Future Bailouts?
ƒ Further Insurance Bailout?

– Insurers holding federally chartered banks or thrifts were given access to TARP the Capital
Purchase Program, and the deadline to apply has passed.

– No word on potential for future insurance bailout beyond those that qualified for the Capital
Purchase Program.

ƒ Further auto bailout?

– P
Pursuant to the
h AAutomotive
i IIndustry
d Fi
Financing
i Program
P (December
(D b 2008),
2008) GGenerall M
Motors and
d
Chrysler were required to submit detailed restructuring plans to Treasury by February 17

– President Obama has created a Presidential Task Force on Autos to oversee restructuring and
has announced that a government-backed
government backed bankruptcy remains a viable option

– The Obama administration announced an “auto suppliers bailout” on March 17, 2009

– Obama administration rejected Chrysler’s and GM’s restructuring plans on March 30, 2009.
Ch l was give
Chrysler i one month, th GM ttwo months,
th tto restructure
t t or be
b forced
f d into
i t bankruptcy
b k t

– The Obama administration is considering converting GM’s loans into equity

43
On The Horizon: Possible Upcoming Initiatives

f Potential Shift from State Regulation to Federal Regulation?

ƒ Treasury proposal for “eliminating gaps in regulatory structure”

ƒ Federal Insurance Regulation?

– Likelihood of federal insurance regulator? Optional federal charter?

• If systemic regulator, Fed does not want to be full functional insurance regulator

– Federal guarantee / insolvency regime?

• AIG would
ld be
b subject
bj to 20 state solvency
l regimes
i – current process would
ld create
systemic risk

• State guarantee funds: unfunded / pay-as-you-go and limited coverage

– Treasury Secretary Geithner said “there is a good case for introducing an optional federal charter
for insurance companies” (Testimony before the House Financial Services Committee, 3/26/09)

ƒ Federal Mortgage Regulator?

– The Mortgage Bankers Association sent a letter to House and Senate Banking Committee
leaders proposing the creation of a “Federal Mortgage Regulatory Agency” that “regardless of
charter or license…[would] implement standards and oversee all mortgage bankers and brokers.”
The p
proposed
p agency
g y would include both state and federal regulators
g on its board of directors.
(National Mortgage News, 3/25/09)

44
On The Horizon: Possible Upcoming Initiatives

f Corporate Governance
ƒ Proxy access: permit shareholders to nominate directors through the company's own proxy statement

ƒ Elimination of broker discretionary voting: disallow brokers from voting on election of directors without
specific instructions from shareholders

ƒ Expanded disclosure of directors'

directors backgrounds in a company's
company s proxy statement

ƒ Advisory vote on executive compensation (say on pay): allow shareholders to vote on the disclosure
of executive compensation

45