FACTBOX-Major US financial regulation initiatives
June 10 (Reuters) - The Obama administration and congressional Democrats are moving to tighten U.S. financial regulation to prevent another banking and market crisis.
Changes will affect banks, hedge funds, exchanges and other segments of the financial services industry. The administration is expected to unveil a comprehensive reforms package on June 17, covering some of the major issues listed below. Firms whose business models could be at risk under various proposed changes are listed in each section under "political risk exposure":
BANK REGULATION:
The Obama administration has been eyeing a plan to create a single government agency to regulate all banks.
But that approach may be losing traction in the face of the politically difficult task of consolidating four existing federal banking regulators.
Some lawmakers see the possibility of merging the Office of Thrift Supervision with the Office of the Comptroller of the Currency. Both are Treasury Department units.
Another option is moving some of the Federal Reserve's and the Federal Deposit Insurance Corp's bank supervision duties into the newly merged entity.
OTC DERIVATIVES:
The administration has proposed cracking down on over-the-counter derivatives with a plan to move more trading onto exchanges or into clearinghouses, supervise dealers more closely, and make this opaque market more transparent.
The proposal will likely be linked to the systemic risk regulator plan. The scope of OTC derivatives reform will be decided by definitions such as which derivatives are "standardized" and which are "customized," as well as which are moved onto exchanges, which to central clearinghouses, and which are only subjected to increased disclosure.
Political risk exposure: JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N), CME Group Inc (CME.O), IntercontinentalExchange (ICE.N).
SYSTEMIC RISK REGULATOR:
The Obama administration wants to establish a government entity to monitor systemic risk in the economy, with the idea that it could head off future crises. No single agency is now designated to do this. The Fed had been favored initially for the task, but many lawmakers are skeptical of its abilities.
Recently the administration and key congressional Democrats have said they are also open to the idea of forming an interagency council on financial stability. The end result could be a combination of the two approaches.
UNWINDING FAILING FIRMS:
The administration has sent Congress a draft "resolution authority" bill to empower the government to seize and unwind large, failing financial firms that are not banks. No clear procedure for this exists at present.
The FDIC, which already seizes and unwinds failed banks, may get the nod for this new authority. But Republicans are countering with a proposal to create a new chapter in the bankruptcy code.
FINANCIAL PRODUCTS SAFETY COMMISSION
The administration is expected to propose creation of a U.S. agency to protect consumers who use financial products.
The proposal has been offered as a bill in Congress. It would set up a Financial Product Safety Commission, similar to the U.S. Consumer Product Safety Commission, for products ranging from mutual funds to mortgages.
HOUSING, MORTGAGES AND SECURITIZATION:
The House of Representatives on May 7 approved a bill to force mortgage lenders to keep 5 percent of loans they securitize, tighten mortgage broker oversight and protect borrowers. That measure is now languishing in the Senate.
The securitization component of the House bill may be included by the administration in its overall package.
Political risk exposure: Citigroup, Wells Fargo (WFC.N), Bank of America, JPMorgan.
EXECUTIVE PAY:
U.S. officials are looking at ways to force reforms in financial industry pay practices to discourage excessive risk-taking. A pay provision is expected to be included in the administration's reforms package.
The administration on June 10 named Kenneth Feinberg as its pay czar to police the compensation of top employees at companies receiving "exceptional" aid from the government. It also urged giving shareholders more say on setting executive salaries, a long-cherished goal of investor rights activists.
