Academic

The Obama administration proposed consumer protection legislation on Friday, we'll outsource the analysis of the main proposals to CorpCounsel:

- Consumer Testing of Disclosures and Rules: One part of the proposal would bolster the "SEC's authority to conduct consumer testing." Consumers? I think they mean investors? The SEC's stated mission is investor protection and I don't recall the term "consumer" being mentioned in any of the existing statutes that give the SEC some sort of authority nor any of the agency's rules and regulations.

- Expand Protections for Whistleblowers: Under the proposed legislation, the SEC would gain authority to establish a fund to pay whistleblowers. Although perhaps inviting in concept, this could be tricky to implement. If the SEC Staff dislikes being a referee in the shareholder proposal process, how will they enjoy a process that involves them potentially taking sides more clearly against companies and actually having to dispense money? If adopted, I would consider becoming a bounty hunter because I've always wanted to wear big hats...

- Establish a Permanent Investor Advisory Committee: How many federal agencies have permanent advisory committees? This could set a bad precedent - and even though investors may have been under-represented by those that regularly approach the SEC in the past, the SEC has heard plenty from investors over the past few years. The creation of a permanent committee may swing the pendulum the other way so that the investor perspective dominates the SEC's view of the world.

In the long run, the much more likely result is that regularly meeting with an advisory committee would simply be a waste of time. I like the idea of roundtables on specific issues where all sides are represented - as well as the normal comment process on rule proposals - for the SEC to obtain all the outside input it needs. I'm not a big believer in conducting more meetings as a way to find solutions to problems.

In addition, Basel finalized improvements to its capital accord, widely seen as failing, today, the thing to note is that the committee also has indicated, once again, that it will be introducing a leverage ratio on banks, which could, if done aggresively, really shrink them:

Under the Basel II enhancements approved at the July meeting, the Committee is strengthening the treatment for certain securitisations in Pillar 1 (minimum capital requirements). It is introducing higher risk weights for resecuritisation exposures (so-called CDOs of ABS) to better reflect the risk inherent in these products, as well as raising the credit conversion factor for short-term liquidity facilities to off-balance sheet conduits. The Committee is also requiring that banks conduct more rigorous credit analyses of externally rated securitisation exposures.