June 15, 2009 / 5:17 PM / 11 years ago

FACTBOX: Obama plan for tightening financial regulation

(Reuters) - The Obama administration’s plan for tightening financial regulation was outlined by two senior officials in a piece in The Washington Post on Monday.

Here are the main provisions, as presented in the piece by Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers:

*CAPITAL AND LIQUIDITY STANDARDS

Financial institutions would have 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.”

*SYSTEMIC RISK REGULATION

Large, interconnected firms whose failure could threaten the financial system’s overall stability would face new consolidated supervision by the Federal Reserve.

An inter-agency council of regulators with “broad coordinating responsibility” would also be set up.

*SECURITIZATION

Asset-backed securities issuers would 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.

*CREDIT RATING AGENCIES

Reliance by investors and regulators on credit-rating agencies would be reduced.

*CONSUMER, INVESTOR PROTECTION

“A stronger framework for consumer and investor protection” would be offered.

*OTC DERIVATIVES

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

The officials’ outline stated: “All derivatives contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse.”

*RESOLUTION AUTHORITY

A federal government mechanism would be set up for “the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system.”

Draft legislation for this “resolution authority” has already been proposed by the administration, with the Federal Deposit Insurance Corp expected to get this new duty.

Editing by James Dalgleish

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