The United States has the largest and most efficient capital markets in the world, providing the investment needed for businesses worldwide to grow and flourish. Since the 107th Congress, the Financial Services Committee has had responsibility for overseeing U.S. policy in the capital markets and for ensuring the transparency and integrity of those markets. Millions of Americans either directly or indirectly invest their savings and retirement funds in the capital markets. Unlike accounts at banks and other depository institutions, these investments are not insured by the federal government. In light of these facts, the Democratic Caucus has sought to promote policies that will provide the greatest possible investor protection and ensure all investors are treated fairly. The Committee also has oversight responsibility for the insurance industry and for a number of government-sponsored enterprises.

Sarbanes-Oxley Act Implementation

The collapse of Enron and revelations of accounting fraud at major public companies has profoundly shaken the confidence of investors in U.S. equity markets. To help restore the integrity of the markets, the Democratic Caucus promoted reforms that were ultimately adopted as part of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act included important reforms intended to restore auditor independence , improve financial disclosures, increase corporate responsibility, and enhance the ability of the Securities and Exchange Commission to prosecute securities fraud. For these reforms to be effective, however, they must be thoroughly implemented. The Committee’s Democrats will continue to focus on ensuring that post-Enron reforms are fully and effectively implemented.

Barney Frank Assails the Bush Administration’s Failure to Put Sarbanes-Oxley Law into Effect (click here to view)

• Corporate Governance
  
  The Sarbanes-Oxley Act included important corporate governance reforms to ensure that independent directors were truly independent and that auditors were responsible only to audit committees, not to management. More needs to done, however, to ensure that the management and the boards of directors of public companies act in the interests of shareholders. The Democratic Caucus will continue to press for additional reforms to reduce the conflicts of interest faced by managers, directors, and auditors.
  
• Auditor Oversight
  
  The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board to provide direct oversight of the auditing profession for the first time. The Financial Services Committee must exercise its oversight authority to ensure that the new Oversight Board provides the kind of regulation and supervision necessary to restore the independence and integrity of the audit profession. Committee Democrats will continue to push for policies that limit the conflicts of interest faced by auditors as a result of non-audit services provided to public companies.
  
  Statement of Rep. Barney Frank (D-MA) on Funding of the Public Company Accounting Oversight Board (click here to view)
  

Mutual Funds

The majority of individual investors in the U.S. invest in the securities markets indirectly through mutual funds. The Committee is responsible for the oversight of mutual fund industry, which includes ensuring the adequacy of investment advisor relations and fee disclosures. Committee Democrats will promote policies to provide clear disclosure of all costs of investing in mutual funds to permit investors to compare both the costs and returns of funds. Such clarity will enhance competition between funds to keep costs low and enable investors to choose the best investment for their needs. Committee Democrats also plan to examine carefully the conflicts of interests mutual fund managers, advisors, and boards of directors face to promote policies that will ensure that each acts in the best interests of investors.

SEC Oversight

The Financial Services Committee is responsible for oversight of the Securities and Exchange Commission. As part of that responsibility, Committee Democrats have worked hard to help obtain the funding the Commission needs to provide the market oversight and enforcement that Congress intended. After passage of the Sarbanes-Oxley Act, which included a substantial increase in authorized funding for the Commission for 2003, the Committee worked to ensure that the funding level authorized by the Act was actually provided. Committee Democrats will continue to work to gain additional increases in funding for the Commission in 2004 as part of efforts to restore market integrity and investor protection.

Statement of Rep. Barney Frank Regarding President Bush's Statement on SEC Funding (click here to view)

Insurance

The availability and cost of insurance is a matter of concern to the Democratic Caucus of the Financial Services Committee. The Committee has scheduled a series of hearings on various aspects of insurance issues. Democrats will emphasize the need to assure that affordable insurance is available to all consumers by protecting consumers from abusive marketing practices such as churning life insurance policies, coercion and high-pressure sales tactics, bundling products and charging excessive premiums. In addition, the Democratic Members of the Committee will push to examine the growing use of credit-based insurance scores to evaluate new applicants and to renew existing policies. Democratic Members are also interested in the use of corporate-owned life insurance policies on employees, and the notifications provided to the employees.

Government-Sponsored Enterprises

Government-Sponsored Enterprises (GSEs) were created by Congress to assist certain groups of borrowers such as homeowners, farmers, ranchers, and mortgage lenders gain access to the appropriate capital markets. There are many GSEs, but the Committee focuses on Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. Their implicit federal government guarantee, which differs from the explicit guarantee of U.S. Treasury securities, and other special privileges associated with their GSE status allow them to participate in the capital markets at advantageous rates. As it did in the 107th Congress, the Committee is expected to have hearings about the Department of Treasury’s call for enhanced financial disclosures for all GSEs and the Office of Federal Housing Enterprise Oversight’s (OFHEO) risked-based capital rules.

Fannie Mae & Freddie Mac--These GSEs are the largest source of housing finance in the United States. Their safety and soundness regulator is OFHEO, while their mission regulator is the Department of Housing and Urban Development. Each corporation is required to provide liquidity and assistance relating to mortgages for low- and moderate-income families in promoting access to mortgage credit. The GSEs fund residential mortgages by purchasing loans directly from primary market mortgage originators, and then either package these loans into mortgage-backed securities or retain these mortgages in their portfolios.

Federal Home Loan Bank System--This system consists of the twelve district Federal Home Loan Banks (FHLBanks), the Office of Finance (the FHLBanks’s fiscal agent) and the Federal Housing Finance Board (the FHLBank’s safety & soundness and mission regulator). The FHLBank system’s public policy mission is to support residential mortgage lending and related community investments through it members. Each FHLBank is a separate, member-owned corporation. Members include federal and state-chartered commercial banks, savings associations, credit unions, and insurance companies. Each member institution must purchase a minimum level of stock in the appropriate regional FHLBank. These FHLBanks are then able to extend low-cost advances to member institutions.

Related Links:

http://www.sec.gov
http://www.fanniemae.com
http://www.fhlbanks.com
http://www.freddiemac.com