Legal Alert
 
 

 

Financial Regulatory Reform Proposal by Obama Administration on June 17, 2009
 

President Obama formally unveiled his Administration's proposed overhaul of the financial regulatory system today. 
 
In support of the President's comments on his proposal, the U.S. Treasury Department issued a document titled "Financial Regulatory Reform: A New Foundation."  The document provides additional details of the list of structural and functional changes to the financial regulatory system proposed by the President.  Among the proposed changes are the following salient features: 

1. Create a Financial Services Oversight Council to identify emerging risks and advise the Federal Reserve regarding financial firms that are too-big-to-fail.
   
   
2. Implement heightened consolidated supervision and regulation of all large interconnected financial firms.
   
   
3. Strengthen capital and other prudential standards for all banks and bank holding companies (BHCs) by reassessing the existing regulatory capital requirements for banks and BHCs, including new Tier 1 financial holding companies (FHCs).  Develop federal guidelines to better align executive compensation practices of financial firms with long-term shareholder value and prevent incentive is pay that could threaten the safety and soundness of the firm.  
   
   
4. Support legislation to allow non-binding shareholder resolutions on the compensation packages of senior executive officers. 
   
   
5. Accounting standard setters (the FASB, the IASB, and the SEC) would review accounting standards to determine how financial firms should be required to employ more forward-looking loan loss provisioning practices.  
   
   
6. Close loopholes in bank regulation, such as by creating new a federal government agency, the National Bank Supervisor (NBS), to conduct prudential supervision and regulation of all federally chartered depository institutions, and all federal branches and agencies of foreign banks.
   
   
7. Eliminate the Office of Thrift Supervision (OTS), but preserve its interstate branching rules for state-chartered banks and national banks.
   
   
8. Eliminate the SEC's programs for consolidated supervision.  Investment banking firms that seek consolidated supervision by a U.S. regulator would be subject to supervision and regulation by the Federal Reserve.
   
   
9. Require hedge funds and other private pools of capital to register with the SEC under the Investment Advisers Act.  
   
   
10. Reduce the susceptibility of Money Market Mutual Funds (MMFs) to runs, such as by requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources. 
    
    
11. Modernize and improve the system of insurance regulation in accordance with six principles and create an Office of National Insurance within the U.S. Treasury to coordinate insurance regulation.  
    
    
12. Determine the future role of the Government Sponsored Enterprises (GSEs) by Treasury and HUD developing recommendations on the future of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank system.
    
    
13. Establish comprehensive regulation of financial markets, including by promulgating federal banking agency regulations requiring securitization market originators or sponsors to retain an economic interest in a material portion of the credit risk of securitized credit exposures.  
    
    
14. Create comprehensive regulation of all OTC derivatives, including credit default swaps (CDS).  
    
    
15. Protect consumers and investors from financial abuse by creating a new Consumer Financial Protection Agency ("CFPA") to protect consumers of credit, savings, payment, and other consumer financial products and services, and to regulate providers of such products and services.
    
    
16. Create a resolution regime to avoid the disorderly resolution of failing BHCs, including Tier 1 FHCs.  
    
    
17. Amend the Federal Reserve's emergency lending authority.
    
    
18. Raise international regulatory standards and improve international cooperation by strengthening the international capital framework via modification and improvement of Basel II, including refining the risk weights applicable to the trading book and securitized products.  
    
    
19. Improve Accounting Standards to require accounting standard setters to clarify and make consistent the application of fair value accounting standards, including the impairment of financial instruments, by the end of 2009.  
    
    
20. Tighten oversight of credit rating agencies.
     
    
    For more information on the proposal or for financial services, business, or individual legal services, please contact: