Many reasons have been suggested for the recent economic and financial crisis. However, one cause that is often mentioned is a badly outdated regulatory system that failed to effectively protect the system from risky financial instruments, poor credit decisions and predatory lending practices. The Obama Administration’s response has been to make restructuring the domestic financial regulatory system a major legislative priority.
Earlier this year, the Treasury Department released an extensive white paper on its plan for regulatory reform, “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” That white paper proposes a drastic overhaul of the regulatory system. The proposals include the designation of the Federal Reserve Board as a “systemic risk regulator” with responsibility to oversee all financial firms that are found to pose a threat to the economy’s financial stability, establishment of a mechanism to resolve failing systemically significant companies outside of bankruptcy, creation of a “Consumer Financial Protection Agency” to enforce financial consumer and fair lending laws, the merger of certain federal banking agencies into a new “National Bank Supervisor” and the elimination of the federal thrift charter.
The Treasury is reducing its proposals to legislation that is being considered by Congress during the summer and fall of 2009. That legislative process has significant implications for financial services companies and financial institutions.
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