Banking: Congress not done with financial sector reform, says Wolters Klewer report

James Hamilton, an analyst with Wolters Klewer, has authored Prospects for Financial Legislation in the 12th Congress and in it he says that there is growing, bipartisan support for reform of government-sponsored enterprises (GSEs), including Fannie Mae and Freddie Mac, as part of the overall reform of the securitised secondary mortgage market. He argues that, as part of GSE reform, legislation creating a U.S. covered bond market under SEC supervision would replace the mortgage securitisation function that GSEs currently perform.

He says that covered bonds have been used in Europe to help provide additional funding options for the issuing institutions and are a major source of liquidity for many European nations' mortgage markets. The legislation would seek to provide the same benefits to the U.S. market.

"The covered bond provisions narrowly missed being included in the Dodd-Frank Act," says Hamilton. "It's likely that new legislation would provide for the regulatory [supervision] of covered bond programs, including provisions for default and insolvency of covered bond issuers and could subject covered bonds to SEC regulation."

In relation to derivatives, Hamilton says, there is a move to delay implementation of parts of the Dodd-Frank Act so as to ensure things are done properly. The new chairman of the House Financial Services Committee, Rep. Spencer Bachus has said that Congress will consider legislation to delay the statutory deadlines in Dodd-Frank if that will allow the SEC and CFTC to move deliberately and carefully to ensure that the derivatives regulatory regime is correctly implemented. Bachus has also written to several committees asking that they think carefully before finalising definitions of some market participants so as to ensure smaller companies are not forced out of the market.

Also, Hamilton says, that Disciplinary proceedings by the Public Company Accounting Oversight (i.e. supervision) Board against accountants and auditors should no longer be conducted in camera but should be in public in the same way as similar proceedings by the Securities and Exchange Commission.