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Banking and
Financial Institutions Law Update
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Banking and
Financial Institutions Team Leaders
Jean
M. Weipert
Team Members
William G. Asimakis,
Jr.
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BEYOND THE "TARP"
FINANCIAL REGULATORY
REFORM PROPOSAL
Initial
reaction to President Obama's proposals for comprehensive regulatory
reform seems to be focused on the expanded authority of the Federal
Reserve. In testimony before the Senate Banking Committee on
Thursday, the Wall Street Journal reports that Treasury Secretary
Timothy Geithner was "peppered" with questions relating to
the proposed expanded authority of the Fed to regulate systemic risk
and examine any firm that could threaten financial stability.
Under the Obama plan, firms whose failure could pose a
threat to financial stability due to their combination of size,
leverage, and interconnectedness, or so-called "Tier 1 Financial
Holding Companies," would face much stricter oversight from the
Fed. Depending on the criteria set in the legislation, many
large banks and insurance companies could fall under the new
umbrella. Whether and to what extent the Tier 1 FHC designation
will cover companies traditionally outside the auspices of Fed
scrutiny remains to be seen, although some have conjectured that
beside insurers, a company like General Electric, with its GE Capital
financing arm, might qualify.
According to the 89-page White
Paper released by the Administration on Wednesday,
the President's proposed regulatory reform has five objectives:
1. Promote robust
supervision and regulation of financial firms through:
A. The creation of a Financial Services Oversight Council to
identify emerging systemic risks and improve interagency cooperation.
B. New authority for the Federal Reserve to supervise all firms
that could pose a threat to financial stability, even those that do
not own banks.
C. Stronger capital and other prudential standards for all
financial firms, and even higher standards for large, interconnected
firms.
D. A new National Bank Supervisor to supervise all federally
chartered banks.
E. Elimination of the federal thrift charter and other
loopholes that allowed some depository institutions to avoid bank
holding company regulation by the Fed.
F. The required registration of advisors of hedge funds and
other private pools of capital with the SEC.
2. Establish
comprehensive supervision of financial markets through:
A.
Enhanced regulation of securitization markets, including new
requirements for market transparency, stronger regulation of credit
rating agencies, and a requirement that issuers and originators
retain a financial interest in securitized loans.
B. Comprehensive regulation of all over-the-counter
derivatives.
C. New authority for the Fed to oversee payment, clearing and
settlement systems
3. Protect
consumers and investors from financial abuse through:
A.
Creation of a new Consumer Financial Protection Agency to protect
consumers across the financial sector from unfair, deceptive and
abusive practices.
B. Stronger regulations to improve the transparency, fairness
and appropriateness of consumer and investor products and services.
C. A level playing field and higher standards for providers of
consumer financial products and services, whether or not they are
part of a bank.
4. Provide
the government with the tools it needs to manage financial crises
through:
A.
A new regime to resolve nonbank financial institutions whose failure
could have serious systemic effects.
B. Revisions to the Fed's emergency lending authority to
improve accountability.
5. Raise
international regulatory standards and improve international
cooperation through international reforms to support the efforts at
home, including strengthening the capital framework; improving
oversight of global financial markets; coordinating supervision of
internationally active firms; and enhancing crisis management tools.
Please
refer to the White Paper for a more detailed description of the
Administration's Financial Regulatory Reform proposal.
Clark
Hill will strive to keep you consistently updated and informed about
the government's evolving response to the turmoil in our capital
markets. Please click here to view our previously
distributed newsletters.
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To find out more
about Clark Hill and our Banking and Financial Institutions
Law Group, visit clarkhill.com
or call 800.949.3124
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