July 19, 2010
Passage of Financial Reform Bill Applauded by Sustainability Investors
by Robert Kropp
Bill as passed by Senate includes provision for proxy access but not a majority voting standard.
Last Thursday, Congress finally made official the response of the US government to the conditions
that brought about the financial crisis, as by a vote of 60-39 the Senate passed financial
regulatory reform legislation. Three Republicans joined all but one Democrat in voting in favor of
the bill, which signaled the end of decades of deregulation of the financial industry.
The bill contains a version of the so-called Volcker Rule, which will require banks to
spin off their derivatives trading business. The trading of derivatives will also be subject to
federal oversight. A new regulatory council will be responsible for monitoring systemic risk in the
economy, and a process for the liquidation of "too big to fail" banks is included as well.
The bill also creates a regulatory bureau within the Federal Reserve responsible for protecting
consumers of financial products.
For investors, the bill includes a provision for proxy
access, which gives the Securities and Exchange Commission (SEC) authority to adopt a process by
which shareowners may submit alternate slates of candidates for corporate boards of directors. The
bill also provides for mandatory nonbinding shareowner votes on executive compensation, although it
mandates such a vote every three years, instead of annually.
The bill increases the
oversight of credit rating agencies, whose inflated ratings of mortgage-backed securities misled
investors into believing that such securities were credit-worthy. The bill allows for lawsuits to
be filed by investors against credit rating agencies.