By Cydney Posner

Following is a link to the President's proposal to reform financial regulation. Here is a link to the related article in the NYT. The article states that the proposal, which seeks to give the federal government the tools to police the shadow system of finance and to make it easier for regulators to head off problems at large, troubled institutions or take control of them if they fail, was shaped by government officials, financial experts, lawmakers, industry executives and lobbyists (and you can be sure those lobbyists aren't done yet). Recognizing that the plan was "not as bold as some had hoped," the President said that they wanted to do it right, but did not "want to tilt at windmills." The plan would impose tighter rules on mortgage-backed securities and other "securitized credit exposures" by requiring that issuers retain at least a five percent interest [and that will that do it? ] to discourage companies from marketing unsuitable loans. The proposal would also require advisers of hedge funds and private equity funds to register with the SEC and impose new conflict-of-interest rules on credit rating agencies.

The plan states that it has five key objectives:
  • Promote Robust Supervision and Regulation of Financial Firms, including a new Financial Services Oversight Council of prudential 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, stronger capital and other prudential standards for all financial firms and even higher standards for large interconnected firms, and registration with the SEC under the Investment Advisers Act of advisers of all hedge funds and other private pools of capital, including private equity funds and venture capital funds whose assets under management exceed some modest threshold.
  • Establish Comprehensive Regulation of Financial Markets, including enhanced regulation of securitization markets, new requirements for market transparency, stronger regulation of credit-rating agencies, requirements that issuers and originators retain a material financial interest in securitized loans, additional regulations to align compensation of market participants with longer-term performance of the underlying loans, comprehensive regulation of all over-the-counter derivatives, and new authority for the Federal Reserve to oversee payment, clearing and settlement systems, and harmonize regulation of futures and securities.
  • Protect Consumers and Investors from Financial Abuse, including a new Consumer Financial Protection Agency to protect consumers from abusive practices and stronger regulations to improve the transparency, fairness and appropriateness of consumer and investor products and services, promotion of retirement security by strengthening employment-based and private retirement plans and encouraging adequate savings, new SEC expanded authority to promote transparency in investor disclosures and new SEC tools to establish a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers, increasing accountability of financial firms and public companies, expanding protections for whistleblowers, expanding sanctions available for enforcement, and requiring non-binding shareholder votes on executive pay plans and new requirements to make compensation committees more independent.
  • Provide the Government with the Tools it Needs to Manage Financial Crises, including a new regime to resolve nonbank financial institutions whose failure could have serious systemic effects and revisions to the Federal Reserve's emergency lending authority to improve accountability.
  • Raise International Regulatory Standards and Improve International Cooperation International, including reforms to strengthen the capital framework, improve oversight of global financial markets, coordinate supervision of internationally active firms, and enhance crisis management tools, promote guidelines to align compensation with long-term shareholder value and to prevent compensation structures from providing incentives for excessive risk-taking, and improvement of accounting standards by clarifying and making consistent the application of fair value accounting standards, including the impairment of financial instruments, and making substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards (IFRS is back).

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