The U.S. government has formally set out its plans for major regulator reform in response to the financial crisis.

President Obama proposed a new regulatory structure for the country’s financial system on Wednesday.

The sweeping changes called for in the plan are designed to accomplish several basic objectives:
• increased oversight of all financial firms that pose a significant systemic risk;
• increased market discipline and transparency to ensure the system’s overall stability;
• improved consumer protection in the credit, savings, and payment markets;
• providing the government with better tools needed to manage financial crises, so it is not forced to choose between bailouts and financial collapse; and
• raising international regulatory standards and improve international co-ordination.

Among other things, the plan calls for the creation of a Financial Services Oversight Council to identify emerging risks.

It gives the Federal Reserve Board authority over large, systemically significant financial firms.

A new federal agency, the National Bank Supervisor, will to conduct prudential supervision and regulation of all federally chartered depository institutions.

The Office of National Insurance will be established within the U.S. Treasury to oversee policy in the insurance sector.

The plan also calls for stronger regulation of securitization markets, reduced reliance on credit ratings in regulations, and comprehensive regulation of all over-the-counter derivatives, including credit default swaps.

It also calls for the creation of a new Consumer Financial Protection Agency, and new tools for the SEC to strengthen investor protection.

On the international front, the plan recommends that the Basel Committee on Banking Supervision continue to improve the capital adequacy framework. It also calls for greater standardization and improved oversight of OTC derivative markets, stronger cooperation on supervision of global financial firms, similar regulation of other countries’ systemically important firms, and better oversight of credit rating agencies.

In response to the plan, the Securities Industry and Financial Markets Association expressed its support. “With their proposals today, the administration has moved this critical debate from broad discussion to specific action – this is an important step forward. We have a once-in-a-generation opportunity to rebuild our regulatory structure so that our financial system is more stable, more resilient and better underpins a dynamic U.S. economy,” said SIFMA president and CEO, Timothy Ryan.

The Financial Services Roundtable also said it favours reform, saying, “Our economic recovery depends on these reforms.” The Roundtable said it supports many of the administration’s proposals, like the creation of a systemic risk oversight authority, however it stressed that the financial services industry does not necessarily need more regulation, but it does need more effective regulation.

It applauds the initial legislative proposal of an Office of National Insurance, but believes it must go farther. It also opposes the creation of the new consumer protection agency, which it says “will not adequately serve the best interests of consumers and their financial institutions. The Roundtable opposes separating the regulation of the entity from the regulation of the products, as each regulator will only have half of the information.”

Duncan Niederauer, CEO of the NYSE Euronext, also said that a regulatory overhaul is necessary to restore investor confidence. “Regulatory reform must protect investors, close regulatory gaps and enhance market transparency, while at the same time continuing to encourage the spirit of innovation that has fueled decades of economic growth, produced new products and services and created jobs. Our regulatory system is vastly outdated, and we are encouraged by the administration’s enthusiasm for reform and welcome the opportunity to contribute to this truly important initiative,” he said.

IE