On June 17, 2009, the Obama administration released its proposal for financial regulatory reform. The five policy objectives outlined in the proposal include (1) promoting supervision and regulation of financial firms, (2) establishing supervision and regulation of financial markets, (3) increasing protections for financial consumers, (4) improving tools for managing financial crises, and 5) establishing international regulatory standards and stepping up international cooperation. The plan's major proposals are discussed below:
1. Supervision and Regulation of Financial Firms
The administration proposes the creation of a new Financial Services Oversight Council, which would identify emerging systemic risks and push for interagency cooperation. The plan would also give the Federal Reserve broad supervisory powers over businesses that it believes could pose a threat to financial stability. Further administrative changes include creating a new national bank supervisor to supervise all federal chartered banks, dismantling the federal thrift charter and certain loopholes that allow some depository institutions to avoid bank holding company regulations, and requiring advisors of all hedge funds to register with the SEC. The plan also suggests more stringent capital and prudential standards for all financial firms, especially larger, interrelated firms.
2. Regulation of Financial Markets
The administration recommends enhanced regulation of securitization markets, including new requirements for market transparency, tighter regulation of credit rating agencies and a mandate that issuers and originators retain a financial interest in securitized loans. The plan also proposes comprehensive regulation of all OTC derivatives. The administration again pushes to expand the authority of the Federal Reserve, suggesting that the Fed oversee payment, clearing and settlement systems for the financial market.
3. Consumer and Investor Protections
The administration proposal creates a new Consumer Financial Protection Agency, charged with overseeing consumer protection in credit, savings and payment markets. In addition, the plan calls for tighter regulations for all providers of consumer financial products and services, including those provided separately from banking.
4. Tools for Managing Crises
The administration requests revisions to the Federal Reserve's emergency lending authority to manage and/or prevent crises in the financial sector, including malfunctions in those non-bank financial institutions whose collapse could cause systemic consequences.
5. International Regulatory Standards and International Cooperation
Finally, the administration proposes subjecting foreign financial firms operating in the U.S. to the same robust regulation as U.S. firms, strengthening capital requirements of international financial firms, and improving oversight of global financial markets such as those for credit derivatives.
|
Recommendations Although the proposal has yet to be passed by Congress, the administration's plan signals the government's strong commitment to regulation in the financial sector. More government oversight and strengthened relationships between existing regulatory agencies can be expected. For example, hedge funds will face government regulation for the first time. While some government agencies, such as the Office of Thrift Supervision, will be completely eliminated, others, such as the SEC, will be bolstering their ranks. To prepare for this new state of regulation:
|
To follow ongoing news about the Administration's proposal for financial regulatory reform and related topics, please see our blog, www.financialserviceslitigationmonitor.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
