Obama proposes sweeping changes to US regulation

The largest overhaul of the financial system since the Great Depression proposes more power to the Federal Reserve to police systemically important institutions and the creation of a new federal consumer agency to help protect consumers from risky financial products

WASHINGTON, DC - The US Treasury has released a comprehensive white paper, Financial regulatory reform: A new foundation, that introduces sweeping changes to the US regulatory system.

The main features of the paper include proposals to merge the Office of Thrift Supervision with the Office of the Comptroller of the Currency, as well as create a Financial Services Oversight Council, chaired by the Treasury secretary, who will work alongside the Federal Reserve to monitor system-wide risk. The reform package also seeks to strengthen oversight and fill gaps in existing regulation. One regulator, the Federal Reserve, would become responsible for monitoring systemic risks across various industries. Banks would be required to hold more capital and standards for the most complex firms would be raised.

Complex derivatives would be subject to new regulation and disclosure, and hedge funds and other private pools of capital would have to register with the Securities and Exchange Commission. Firms issuing packaged securities will be required to retain a 5% stake in them in a bid to curb the originate-to-distribute model. A new framework setting up resolution authority for regulators to take over troubled firms was also outlined in the proposals. There is also a proposal to establish a new agency, the Consumer Financial Protection Agency, to regulate and enforce consumer safety in financial products, although the US Securities and Exchange Commission would retain oversight over investment products.

The Obama plan also includes firm proposals for a more co-ordinated international approach to financial regulation for cross-border firms.

The reforms will now be put before Congress and leaders of the House Financial Services Committee and the Senate Banking Committee have promised they will proceed quickly to pass the reforms into law before the end of the year.

Click here for the white paper.