Obama’s Sensibly Modest Fin Reg Reform

The Obama Administration’s proposal for financial regulation reform, written primarily by the Treasury Secretary’s office, is out.  It is a prudently simple set of ideas that are surprisingly easy to summarize.  

First, more supervisory power and capacity to handle systemic risk would be vested in the Federal Reserve and the President’s Working Group (now to be called the Financial Services Oversight Board).  The Fed would be given more explict power to deal with crisis when it arises.

Second,  federal banking authority would be consolidated in a new National Bank Supervisor and a new federal authority, called  the Consumer Financial Protection Agency, would be hatched improve and coordinate consumer financial protection nationwide.

Third, substantively, there would be stronger capital requirements; SEC oversight of hedge funds; and more regulation of securitizations and credit rating agencies.

Fourth, internationally, there would be greater cooperation, with the US leading the way to get other countries to adopt similar oversight.

Most everything else in our regulatory system would stay pretty much the same, including: the FDIC and state banking authorities; state insurance authorities (although a new office within Treasury would promote national coordination); the SEC in securities; the CFTC in futures (although some greater linkage between securities and futures regulation is envisioned); and the NCUA as to credit unions.

David Zaring has a good round up of what this exquisitely moderate and modest proposal means.

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3 Responses

  1. Do you really think all this additional power conglomerated at the federal level is going to help the small-time investor and everyday consumer? If, for instance, I bought a bond with the assurance that I had secured rights within but then some better connected group was put ahead of me when I tried to collect on that assurance – can I count on this administration to look out for my interest…even if it’s not in their political best interest?

    I do so want to believe in this man.

  2. Lawrence Cunningham says:

    Uncertain, though my own characterization of the proposed reform is that very little aditional power is reposed in the federal government, so I’d quibble with the phrase “all this additional power conglomerated at the federal level.” The Fed gets a little more power overall, but through a combination of expansion in some areas and contraction in others. I concur with the implicit notion that the federal consumer agency will not likely be very effective.

  3. Philippe Otter says:

    Well at least he\’s doing something. At this point, I just want to see any action that might bring turn this economy around. Divorces are on the rise, too, because of it: http://lawblog.legalmatch.com/2009/06/17/california-divorce-recession-alimony/