President Obama's plan to overhaul regulation of the financial industry would create several new federal entities, expand the powers of some existing agencies and pare back the authority of others. Highlights of the plan include:
Federal Reserve Powers
Would be given authority to supervise and regulate large financial insitutions whose failure would pose a broader risk to markets or the economy. Would establish stricter capital, liquidity and risk management standards for such firms.
Large institutions in danger of failure could be wound down by the Federal Reserve. Powers would be modeled on the FDIC's authority to take over failing banks.
Investment firms that seek supervision by a single regulator would be subject to supervision by the Fed.
Would have authority to oversee payment, deal clearing and financial settlement systems that are crucial to the financial system. The Fed could also give those systems access to Reserve Bank accounts, financial services and the "discount window" for loans.
The Treausury Secretary would have to give prior written approval for any extension of credit by the Fed to individuals, partnerships or corporations in "unusual and exigent circumstances," changing a key element of the Federal Reserve Act that has given the Fed authority to intervene broadly in the economy.
New regulatory bodies
Consumer Financial Protection Agency
An independent agency to protect consumers of credit, savings, payment and other consumer financial products and services, and to regulate providers of those products and services.
Would have sole rule-making authority for consumer financial statutes and ability to fill regulatory gaps through rule-making.
Could put "tailored restrictions" on product terms and provider practices to prevent unfair treatment or abuse of consumers, "if the benefits outweigh the costs."
Could define standards for "plain vanilla" financial products with simple, straightforward pricing that would have to be offered prominently alongside other products.
Responsible for enforcing fair lending laws and Community Reinvestment Act.
Could require all disclosures and other communications with consumers to be "balanced in their presentation of benefits, and clear and conspicuous in their identification of costs, penalties, and risks."
Would coordinate enforcement efforts with states.
National Banking Supervisor
Would supervise and regulate all federally chartered depository institutions and U.S. branches of foreign banks.
Federal thrift charter would be eliminated and Office of Thrift Supervision would be merged into new agency.
Financial Services Oversight Council
Would facilitate information sharing and coordination among regulators to identify emerging risks.
Would assist the Federal Reserve in indentify firms whose failure would pose a broader risk to markets or the economy.
Members would include Treasury Secretary (chairperson), Federal Reserve chairperson, director of the National Bank Supervisor, director of the Consumer Financial Protection Agency, chairperson of the Securities and Exchange Commission, chairperson of the Commodity Futures Trading Commission, chairperson of the Federal Deposit Insurance Corp., and director of the Federal Housiing Finance Agency.
Office of National Insurance
Would be established in the Treasury Department to gather information and develop expertise on the industry, negotiate international agreements and coordinate insurance policy.
Securities market
Originators or sponsors of asset-backed securities would be required to maintain some economic interest in the securities.
Compensation of market pariticpants should be tied to longer-term performance of loans underlying the securities.
SEC should get clear authority to require "robust reporting" of data on asset-backed securities.
SEC would strengthen regulation of credit rating agencies that assess the soundness of securities, including conflict of interst rules.
Banking regulation
Treasury Department working group would reassess supervision of banks and bank holding companies, issuing a report by Oct. 1.
Treasury working group would reassess existing capital requirements for banks and bank holding companies, issuing a report by Dec. 31, 2009.
Accounting standards boards and SEC would review standards to determine more forward-looking loan loss provisioning practices.
Derivatives
Require all standardized over-the-counter derivative transactions to be executed in regulated and transparent venues and cleared through regulated central counterparties. Standardized derivatives also would be moved onto exchanges or electronic trade execution systems.
Customized derivatives (designed for specific companies) would be subject to reporting requirements to regulators.
Hedge funds
Advisers to hedge funds and other private capital pools whose assets exceed a "modest threshold," including venture capital and private equity funds, would be required to register with the SEC.
Advisers would be required to report information that allows regulators to assess whether the fund poses a threat to financial stability.
Executive compensation
Federal regulators would issue guidelines to better align pay at financial firms with long-term shareholder value and prevent compensation practices that would encourage risk-taking.
Would require all public companies to hold non-binding shareholder votes on compensation of senior executives.
Would make corporate compensation commitees more independent.
