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The financial services reform legislation passed in July contains numerous provisions, two of which will be of interest to physicians. One concerns banking and lending; the other involves investing.
One exception is people with extremely good credit. Tighter regulations means there are actually fewer borrowers, meaning increased competition for quality loans. Most physicians will actually benefit from this competition. Look for great rates and terms as competition heats up.
FINANCING TO BECOME MORE DIFFICULT
Consumers likely will take a while to adjust to the changes. While automobile dealers were exempted, nearly every other lender faces a new and constrained world. After a decade or 2 of very easy credit, it's going to take some time to find a comfortable equilibrium between borrowers and lenders.
Reform's other big impact is on the investment side. Wall Street's turmoil spurred considerable change in the industry. Brokerage firms, especially, will have new and greater responsibilities with respect to their clients. The Securities and Exchange Commission (SEC) is still working out details, but positive change is on the way for brokerage clients.
Other changes are already better defined. Complex derivative investments will face tighter scrutiny and more transparent reporting. Credit derivatives, one segment of this market, are partially blamed for the 2008 economic meltdown. Other derivative investments must trade on bona fide exchanges and meet new reporting and disclosure requirements.
The legislation includes new requirements for the entire investment spectrum of credit and debt. First, bankers issuing new loans must make sure the borrower has the means to pay them back. Second, in many cases, they must keep part of the loans if they package and sell them to investors, meaning they'll have some stake in ensuring the loans are repaid. Last, bond-rating agencies will face new accountability for their ratings. In other words, no more sweetheart deals for bond issuers.
HEDGE FUNDS FACING GREATER REGULATION
Hedge funds-whose marketers view physicians as a major source of investors-will be regulated under the new law. These quasi-mutual funds, often organized as nonregulated partnerships, will see more inspection from the SEC and other regulators. It is a welcome reform that has been a long time coming.
That leads to a final observation. Ideas for many of these reforms have been floating around for years. Their impact remains to be seen, but genuine crisis creates a certain momentum for change.
It will be years before we see the full effects of this legislation, as many of the rules are still being written. But for once, the field tilts a little toward the consumer, and for most of us, that's terrific news.
The author is principal/chief executive officer of Family Investment Center, a commission-free investment firm in St. Joseph, Missouri. The ideas expressed in this column are his alone and do not represent the views of Medical Economics. If you have a comment or a topic you would like to see covered here, please e-mail firstname.lastname@example.org