Backgrounder: Main points of U.S. financial reform bill

14:31, July 16, 2010      

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The U.S. Senate on Thursday passed a massive financial overhaul bill which President Barack Obama is expected to sign into law next week.

The following are the main points of the legislation:

-- A 10-member council of regulators to oversee and ensure financial stability will be created with the treasury secretary as its head.

-- A new agency to regulate mortgages and credit cards will be created within the Federal Reserve.

-- Over-the-counter (OTC) derivatives trading will be put under supervision and most of OTC derivatives must be traded through more accountable channels such as exchanges and clearinghouses.

-- Banks can only invest limited amounts of capital in private equity and hedge funds, with investment amount no more than three percent of their first-class capital. Also, many derivatives trading markets will have to go through central clearing houses.

-- A new bankruptcy liquidation mechanism will be created with the Federal Deposit Insurance Corporation (FDIC) in charge. Large financial institutions must set aside more capital as risk reserve to ride out tough times.

-- The Government Accountability Office (GAO) will audit and supervise emergency lendings and low-interest loans granted by the Federal Reserve as well as all open market trading transactions under the government's interest policies.

-- The Federal Reserve will supervise the salary system of chief executive officers of private equity firms and have the right to break up large firms if they are deemed a risk to the broader financial sector.



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