Delaware Liberal

Obama Announces New Regulatory Plan

Yesterday the Obama administration released its plan for new regulations of the banking and finance industry.

The President’s plan will:

  • Require that all financial firms that pose a significant risk to the financial system at large are subjected to strong consolidated supervision and regulation
  • Increase market discipline and transparency to make our markets strong enough to withstand system-wide stress and the potential failure of one or more large financial institutions
  • Rebuild trust in our markets by creating the Consumer Financial Protection Agency to focus exclusively on protecting consumers in credit, savings, and payment markets.
  • Provide the government with the tools needed to manage financial crises so it is not forced to choose between bailouts and financial collapse
  • Raise international regulatory standards and improve international coordination
  • The take-aways:

  • There is no reduction in the number of regulatory bodies. One is being ended, but a new one is beginning.
  • A description of the new regulatory body, the Financial Services Oversight Council (from Calculated Risk):

    We propose the creation of a Financial Services Oversight Council to facilitate information sharing and coordination, identify emerging risks, advise the Federal Reserve on the identification of firms whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness (hereafter referred to as a Tier 1 FHC), and provide a forum for resolving jurisdictional disputes between regulators.

    Any financial firm whose combination of size, leverage, and interconnectedness could pose a threat to financial stability if it failed (Tier 1 FHC) should be subject to robust consolidated supervision and regulation, regardless of whether the firm owns an insured depository institution.

    Capital and management requirements for FHC status should not be limited to the subsidiary depository institution. All FHCs should be required to meet the capital and management requirements on a consolidated basis as well.

    Sounds like a good idea!

  • A new Consumer Financial Products Protection Agency to look at financial products. – Good idea!
  • The plan gives the Federal Reserve oversight over non-bank financial institutions (like AIG). The Federal Reserve would be able to take them over (like the FDIC with banks), break them up and sell them off. – Good idea!
  • Hedge funds would now also be covered under regulations. – Good idea!
  • The plan does not address the state by state insurance regulations.
  • More analysis: CBS News, MSNBC

    Exit mobile version