Financial reform amendment protects manufacturers from risk evaluation

By Jia Lynn Yang
Washington Post Staff Writer
Thursday, May 20, 2010; 5:16 PM

The Senate approved Wednesday night an amendment to the financial regulatory bill that would prohibit a proposed new council of risk regulators from examining companies that focus mainly on manufacturing rather than financial services.

The measure, submitted by Sen. David Vitter (R-La.), passed by unanimous consent after Sen. Mark Pryor (D-Ark.) introduced changes aimed at addressing worries that a financial company could evade regulation by adding enough non-banking activities to appear like an industrial firm. Pryor added language giving regulators the authority to go after such companies.

Manufacturers, which sometimes dip into financial services by lending to customers who buy their products, were relieved at the amendment's passage.

"This really just gives us more comfort," said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers.

Companies such as John Deere and Caterpillar had been worried that regulators would lump them into the same category as businesses such as American International Group, which isn't technically a bank but earns most of its revenue from financial services.

The Vitter-Pryor amendment clarifies this gray area by saying that companies must earn 85 percent or more of their revenue from financial-services activities to fall under the watch of a nine-member panel of federal regulators called the Financial Stability Oversight Council. Pryor introduced a new requirement that the same 85 percent threshold apply to a company's assets as well.

Companies deemed systemically risky by the oversight council would face greater regulation from the Federal Reserve.

Critics of Vitter's original amendment worried that by adding the 85 percent threshold to the bill, companies like General Electric, which earns roughly one-third of is revenue from its GE Capital financial subsidiary, would not be regulated. GE Capital, however, is legally a separate company from its parent. The Vitter-Pryor amendment clarifies still further that the oversight council can regulate any company incorporated in the United States, including wholly owned subsidiaries.

"The Fed should not be regulating firms outside of its area of expertise, which is a practice that would only weaken our financial system," said Vitter in a statement.

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