June 15, 2009 / 9:07 PM / 10 years ago

FACTBOX-Major US financial regulation initiatives

June 15 (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”:

SYSTEMIC RISK REGULATOR

The Obama administration wants the Federal Reserve 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 administration also wants to establish an inter-agency council of regulators that would cover broad policy coordination in the same area.

CAPITAL AND LIQUIDITY STANDARDS

The administration wants financial institutions to thicken their capital cushions to absorb losses when times are tough, and make themselves more liquid, or able to move quickly in and out of various holdings, “with more stringent requirements for the largest and most interconnected firms.”

The proposal has broad international implications, with the European Union eyeing similar changes.

SECURITIZATION

The administration is proposing that asset-backed securities issuers face new reporting requirements, as well as a rule requiring originators, sponsors or brokers of securitized instruments to retain at least 5 percent of the performance risk in them.

Political risk exposure: Citigroup (C.N), Wells Fargo (WFC.N), Bank of America (BAC.N), JPMorgan Chase (JPM.N).

CREDIT RATING AGENCIES

Reliance by investors and regulators on credit-rating agencies would be reduced, under administration plans.

The SEC is already considering reforms on potential conflicts of interest at credit rating agencies. Final action is likely months away.

Political risk exposure: Moody’s Corp (MCO.N)>, Standard & Poor’s MHP.N, Fitch Ratings LBCP.PA.

CONSUMER, INVESTOR PROTECTION

“A stronger framework for consumer and investor protection” is being proposed by the administration.

There is already legislation filed in Congress to set up a Financial Product Safety Commission, similar to the U.S. Consumer Product Safety Commission, for products ranging from mortgages to credit cards.

OTC DERIVATIVES

Oversight of over-the-counter derivatives would be imposed under administration plans, as well as unspecified “harmonizing” of futures and securities regulation, and stronger safeguards for payment and settlement systems.

The administration has said it wants to process more trading through exchanges and clearinghouses, supervise dealers more closely, and make this opaque market more transparent.

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 through exchanges, which to central clearinghouses, and which are only subjected to increased disclosure.

Political risk exposure: JPMorgan Chase, Bank of America Corp, Citigroup, Goldman Sachs (GS.N), CME Group Inc (CME.O), IntercontinentalExchange (ICE.N).

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