Financial Regulatory Reform—The Obama Administration Proposal

On June 17, 2009, the Obama administration released its recommendations to reform the financial regulatory system: Financial Regulatory Reform—A New Foundation: Rebuilding Financial Supervision and Regulation. Describing the regulatory gaps that led to the economic crisis the country is now facing, the administration’s recommendations are designed to achieve five key objectives: (1) promote robust supervision and regulation of financial firms, (2) establish comprehensive supervision and regulation of financial markets, (3) protect consumers and investors from financial abuse, (4) improve tools for managing financial crises, and (5) raise international regulatory standards and improve international cooperation. In the proposed plan, which is a blend of legislative initiatives and elements that could be imposed by regulatory fiat, the administration will attempt to shift the focus of financial regulation from the safety and soundness of individual institutions to the interconnections between financial firms and the financial system as a whole.

The wide-ranging proposal also touches on the supervision and regulation of hedge fund advisors and money market mutual funds, the securitization markets, credit default swaps, and OTC derivatives.

The administration’s proposal will be subject to extensive review, negotiation, and discussion by Congress as well as by financial regulators and industry experts, which could well produce legislation that differs greatly from the administration’s proposal. These negotiations will play out while a congressionally mandated committee starts work assessing the causes of the 2007–2009 financial crisis, and federal and state banking agencies continue to fill perceived gaps and shortcomings in their regulatory and supervisory performance.

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