Latest financial reform bill

This morning Senate Banking Committee Chairman Chris Dodd introduced his long awaited financial reform legislation (see Dodd's statement, the summary, the full legislation, and stories in the Washington Post, the Wall Street Journal, and (two stories) the New York Times). There is a lot in the bill -- it creates a Consumer Financial Protection Agency Bureau, an Agency for Financial Stability Oversight Council and a Financial Institutions Regulatory Administration (which replaces the Comptroller of the Currency and the Office of Thrift Supervisions and takes on certain functions of the Federal Reserve and the FDIC) and streamlines the authority of the Federal Reserve and the Comptroller of the Currency. It also creates new regulations on credit rating agencies, corporate pay and governance, hedge funds, derivatives, insurance, investor protections, municipal securities, and securitizations.

This last set of new regulations for securitization may have a direct impact on the monetization of intangible assets. Ever since the melt down of the asset-backed securities (ABS) market, use of the securitization to monetize intangibles has essentially become a dead practice. The proposed legislation requires issuers to hold 10% 5% of the risk. The legislation would also require the SEC to issue rules and regulations requiring a due diligence analysis of the assets underlying the asset-backed security and public disclosure of the results.

The point of these changes is to increase investor trust in the ABS financial instruments. Restoring trust in securitization should help restart the ABS market -- and that should also revive intangible-backed securitization.

At least, that is how it should work in theory. We will have to wait and see if a) any financial reform bill dealing with securitization actually makes it into law, and b) whether it is enough to convince investors to return to the ABS market and, specifically the intangible asset backed securities.