New Financial Regulations

June 17, 2009

Today, President Obama is scheduled to publish his draft plan for re-shaping the regulation of financial frims in the US.   Both the Washington Post and the New York Times have articles today covering this story.  Although the devil is frequently in the details in this area, some broad characteristics of the proposal have been reported.  It appears that the plan does not involve a wholesale rebuilding of the regulatory agencies and apparatus.  The Fed is to be given more broad oversight capability for financial firms of all types:

The plan the president will formally announce on Wednesday would give the Federal Reserve greater supervisory authority over large financial institutions whose problems pose potential risks to the economic system. It would separately expand the reach of the Federal Deposit Insurance Corporation to seize and break up troubled financial institutions. And it would create a council of regulators, led by the Treasury secretary, to fill in regulatory gaps.

It’s been suggested that the Fed was picked because it is somewhat less subject to direct political pressure than some other agencies.  The plan also apparently involves the creation of a new Consumer Financial Protection Agency.

Having worked in the financial services industry for many years, I’m naturally somewhat interested in this, in part because I have seen first hand some of the things that have gotten people into serious trouble. (See, for example, my June 4 post, “Formulas for Disaster, Part 3”.)  There has been a serious mismatch between the knowledge and skills of the people involved, the system by which they are compensated, and the regulatory framework

I have a copy of the “almost final” draft report [PDF], which I am starting to read.  It’s 85 pages long, so I probably won’t finish by lunchtime; but I will probably post some thoughts here once I’ve finished reading.

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