WSJ Publishes Draft Of Obama’s Overhaul

ent Obama will deliver to the nation his administration's proposals for revamping the financial markets today, but prior to his speech, the Wall Street Journal published a ‘[link=][u]near final draft[/u][/link]’ of the White House's plan. Many of the broad strokes for financial reform have already been reported. In Sunday's edition of The Washington Post, Treasury Secretary Tim Geithner and National Economic Council Director Lawrence Summers coauthored an [link=][u]op-ed piece[/u][/link] that provided insight into the administration's line of thinking. ‘In developing its proposals, the administration has focused on five key problems in our existing regulatory regime – problems that, we believe, played a direct role in producing or magnifying the current crisis,’ they wrote. Among the problem areas cited were systemic risk posed by large institutions, weakened lending standards caused by securitization, inadequate consumer protections, and insufficient federal authority that leads to the government choosing between ‘bailouts and financial collapse.’ Geithner and Summers also wrote that the U.S. should ‘lead the effort to improve [financial] regulation and supervision around the world.’ According to the White House draft, the government is proposing the creation of a new Financial Services Oversight Council that would be tasked with identifying systemic risks and coordinating interagency workings. Obama, who had high praise for Federal Reserve Chair Ben Bernanke in a Wall Street Journal interview Tuesday, will likely push for the Fed to take on a new supervisory authority. The administration will suggest more stringent capital requirements, with bigger, more interconnected financial institutions having larger capital cushions, according to the draft. The Office of Thrift Supervision may well be dissolved, and a new National Bank Supervisor may be created. When it comes to the policing of financial instruments, the administration will attempt to find a solution that neither encourages reckless lending nor stifles innovation. ‘To rebuild trust in our markets, we need strong and consistent regulation and supervision of consumer financial services and investment markets,’ the draft says. Important for the mortgage banking industry, a proposed consumer protection agency would have the authority to essentially make over lending practices. The agency's purview would include not only banks, but also nonbanks and brokers, the [link=][u]Wall Street Journal[/u][/link] says, citing a fact sheet circulated by administration officials. Creation of the agency would eliminate ‘regulatory shopping,’ which has been blamed for weak oversight of financial institutions. SOURCES: Wall Street Journal, FinancialStabil


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