The Banking and Strategy Initiative

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The new nuts and bolts | Obama’s new supervisory layer

President Barack Obama released a plan on Wednesday to overhaul U.S. financial regulation in response to a banking and capital markets crisis that played a big role in pushing the economy into recession.

The plan is meant to prevent a repeat of the crisis by closing oversight gaps, requiring thicker capital cushions at financial companies and improving the protection of consumers and investors.

WHAT ARE THE MAIN CHANGES PROPOSED?

The Federal Reserve would monitor “systemic risk” in the economy, together with a council led by Treasury.

The Federal Deposit Insurance Corp would get power to seize and resolve the problems of troubled non-bank companies that pose risks to the economy. The U.S. Securities and Exchange Commission would get additional limited “resolution authority.”

A National Bank Supervisor would be created, taking in the supervision duties of the Office of Comptroller of the Currency OCC and the Office of Thrift Supervision OTS, both Treasury units. The thrift charter that is the legal basis of the savings and loan business would be eliminated and the OTS would be closed.

Financial companies would have to hold more capital to absorb losses when times get tough, and boost their liquidity, or their ability to move quickly in and out of various holdings.

Asset-backed securities issuers would face new regulation, as would hedge funds and credit rating agencies. An independent Consumer Financial Protection Agency would be formed.

Oversight of over-the-counter derivatives would be imposed, as well as “harmonizing” futures and securities regulation, and new payment and settlement system safeguards would be created.

WHY ARE THE CHANGES NEEDED?

The worst financial crisis in generations has thrown banking and capital markets into disarray, dragging down economies around the world.

The Obama administration and congressional Democrats see the crisis as rooted in failures going back years, in some cases decades, in regulation and behavior.

The presidents proposals try to update a regulatory system formed largely during the Great Depression. The goal is to equip regulators to keep better track of markets that have grown in size and scope far beyond the governments view.

The proposals also try to address what Democrats see as an ill-advised government tendency in recent years to trust too much in markets self-correcting and self-policing ability.

via Q+A: What are main issues about Obamas financial plan? | Reuters .

zyakaira notes: Most of it has been here in place internally in banks, like asking the lender to stay liable for the loan till it is repaid..practices overlooked in a period of quick sales and large ramp up..or as deal sweeteners, life is much the same at the banks, whether these agencies can engender respect remins to be seen. But the crisis did bring us one good thing, 24X7 news and transparency in the financial system in terms of a large ‘bank’ of public information on each event

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