Financial Regulatory Reform: A New Foundation

Key Objectives

Requiring strong supervision and appropriate regulation of all financial firms

Promote robust supervision and regulation of financial firms. Financial institutions that are critical to market functioning should be subject to strong oversight. No financial firm that poses a significant risk to the financial system should be unregulated or weakly regulated. We need clear accountability in financial oversight and supervision. The plan proposes:

• A new Financial Services Oversight Council of financial regulators to identify emerging systemic risks and improve interagency cooperation
• New authority for the Federal Reserve to supervise all firms that could pose a threat to financial stability, even those that do not own banks
• Stronger capital and other prudential standards for all financial firms, and even higher standards for large, interconnected firms
• A new National Bank Supervisor to supervise all federally chartered banks
• Elimination of the federal thrift charter and other loopholes that allowed some depository institutions to avoid bank holding company regulation by the Federal Reserve
• The registration of advisers of hedge funds and other private pools of capital with the SEC

Strengthening regulation of core markets and market infrastructure

Establish comprehensive supervision of financial markets. Our major financial markets must be strong enough to withstand both system-wide stress and the failure of one or more large institutions. The plan proposes:

• Enhanced regulation of securitization markets, including new requirements for market transparency, stronger regulation of credit rating agencies, and a requirement that issuers and originators retain a financial interest in securitized loans
• Comprehensive regulation of all over-the-counter derivatives
• New authority for the Federal Reserve to oversee payment, clearing, and settlement systems

Strengthening consumer protection

Protect consumers and investors from financial abuse. To rebuild trust in our markets, we need strong and consistent regulation and supervision of consumer financial services and investment markets. We should base this oversight not on speculation or abstract models, but on actual data about how people make financial decisions. We must promote transparency, simplicity, fairness, accountability, and access. The plan proposes:

• A new Consumer Financial Protection Agency to protect consumers across the financial sector from unfair, deceptive, and abusive practices
• Stronger regulations to improve the transparency, fairness, and appropriateness of consumer and investor products and services
• A level playing field and higher standards for providers of consumer financial products and services, whether or not they are part of a bank

Providing the government with tools to effectively manage failing institutions

Provide the government with the tools it needs to manage financial crises. We need to be sure that the government has the tools it needs to manage crises, if and when they arise, so that we are not left with untenable choices between bailouts and financial collapse. The plan proposes:

• A new regime to resolve nonbank financial institutions whose failure could have serious systemic effects
• Revisions to the Federal Reserve’s emergency lending authority to improve accountability

Improving international regulatory standards and cooperation

Raise international regulatory standards and improve international cooperation. The challenges we face are not just American challenges, they are global challenges. So, as we work to set high regulatory standards here in the United States, we must ask the world to do the same. The plan proposes:

• International reforms to support our efforts at home, including strengthening the capital framework; improving oversight of global financial markets; coordinating supervision of internationally active firms; and enhancing crisis management tools.

See related article: Regulatory reform plan calls for substantial progress towards global accounting standards by year end
 

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