September 14, 2009 / 3:57 PM / 8 years ago

FACTBOX: U.S. financial regulation reform proposals

(Reuters) - U.S. President Barack Obama will promote his stalled agenda for reshaping U.S. financial regulation in a speech on Monday on Wall Street in New York.

One year since the collapse of investment bank Lehman Brothers, and with a severe global financial crisis easing, the president was expected to urge Congress to approve his sweeping program to tighten oversight of banks and markets.

Here is a summary of his proposals and their status. Companies whose businesses could be at risk under the plan are listed under “political risk exposure.”

EXECUTIVE PAY:

The House of Representatives has approved a bill to give shareholders in public corporations annual, nonbinding votes on executive pay, and to ban compensation structures at major financial institutions that encourage excessive risk-taking.

Obama is pleased with the House bill, although his own proposal is more modest. It would give shareholders more “say on pay,” like the House measure, but it would not empower regulators to ban risk-inducing compensation structures.

The Senate has not yet taken action on the issue.

OTC DERIVATIVES:

Many over-the-counter derivatives would be moved onto public exchanges or forced to go through clearinghouses, under an agreement in principle worked out between House lawmakers.

Similarly, the Obama administration wants clearing of standardized OTC derivatives and would move them, as much as possible, onto regulated exchanges, while reporting would be required for transactions in “customized” derivatives.

The Senate has yet to take action.

Political risk exposure: JPMorgan Chase, Bank of America Corp, Citigroup, Goldman Sachs, CME Group Inc, IntercontinentalExchange.

SYSTEMIC RISK REGULATION:

The Obama administration wants to put the Federal Reserve in charge of overseeing large, interconnected firms and systemic risk in the economy.

But some lawmakers are skeptical. They question giving the central bank so much power and responsibility and say it has a weak record on recognizing and addressing systemic risks.

Disenchantment with the Fed is strongest in the Senate where some lawmakers favor giving more power to a systemic risk council of regulators. The Obama plan calls for a council, as well, but it would give the Fed much more clout.

BANK REGULATION:

Bank oversight would be streamlined under the Obama plan with a new national bank supervisor, merging the Comptroller of the Currency and the Office of Thrift Supervision.

The plan would also eliminate the charter for thrifts that underlies the U.S. savings and loan industry.

House Financial Services Committee Chairman Barney Frank opposes killing the thrift charter. Some senators favor a more thorough centralization of bank oversight.

CONSUMER PROTECTION:

A new Consumer Financial Protection Agency would be formed under the Obama plan to oversee mortgages, credit cards and other financial products and services.

The banking industry is fighting the CFPA more fiercely than any of the other Obama proposals it opposes.

In a case of turf-fighting in Washington, some existing regulators have also questioned the CFPA, which would strip a handful of agencies of their consumer protection duties and centralize them in the new organization.

CREDIT RATING AGENCIES:

Reliance by regulators on credit rating agencies would be reduced by repealing legal rules on debt issuance that encourage the use of credit ratings under the Obama plan.

The Securities and Exchange Commission is already considering reforms for ratings agencies, which have been widely criticized in the financial crisis.

Political risk exposure: Moody’s Corp, Standard & Poor‘s, Fitch Ratings.

STUDENT LOANS:

The House education committee has approved legislation to revamp the $92 billion student loan market by closing the Federal Family Education Loan Program and shifting most student lending into the Education Department’s Direct Loan program.

The bill is expected to go the House for a vote this week. It is a top priority of congressional Democrats and the administration. It responds to a crisis last year in which the secondary market for student loans froze, forcing the government to step in so students could go to college.

Political risk exposure: Sallie Mae (SLM Corp), Student Loan Corp, JPMorgan, Bank of America, ITT Educational Services, Corinthian Colleges.

RESOLUTION AUTHORITY:

Obama wants to set up a government mechanism for “orderly resolution of any financial holding company whose failure might threaten the stability of the financial system.”

The proposal is meant to prevent future unpredictable, case-by-case bailouts like those carried out in the hectic final days of the Bush administration during the crisis.

CAPITAL AND LIQUIDITY STANDARDS:

Financial institutions would have to strengthen their capital cushions to absorb losses when times are tough and make themselves more liquid or be able to move quickly in and out of various holdings. More stringent requirements would apply for the largest and most interconnected firms.

This aspect of the Obama plan could be carried out largely through regulatory actions, at both the national and international levels, with minimal involvement by Congress.

Some analysts view that as an advantage in getting new standards on the books, although others are doubtful.

SECURITIZATION:

Issuers of asset-backed securities would face new reporting requirements and be required to keep at least 5 percent of the performance risk in loans they securitize under the plan.

Transactions would be more standardized and compensation of securitizers would be linked to long-term performance.

Political risk exposure: Citigroup, Wells Fargo, Bank of America, JPMorgan Chase.

HEDGE FUNDS, PRIVATE EQUITY:

Obama would require hedge funds and other private pools of capital to register with the SEC. Lawmakers have introduced several bills in Congress to give the SEC authority for this.

Political risk exposure: Bridgewater Associates, D.E. Shaw Group, Farallon Capital Management, Citadel Investment Group, Fortress Investment Group and many others.

SHORT-SELLING:

The SEC completed a rule on July 27 to clamp down on naked short selling and is considering other rules on short-selling.

INSURERS:

The administration has called for a new Treasury Department Office of National Insurance that would monitor the industry and gather data but not regulate.

Political risk exposure: Allstate Corp, Travelers Cos Inc, Hartford Financial, MetLife Inc, Prudential Financial Inc.

Reporting by Kevin Drawbaugh, Karey Wutkowski, Patrick Rucker, Rachelle Younglai, John Poirier, Chuck Abbott, Christopher Doering, David Lawder, Jonathan Spicer; Editing by Kenneth Barry

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