Sweeping Changes On the Way For Financial Industry

Posted on July 7, 2009. Filed under: Uncategorized |

In June President Obama delivered to Congress his recommendations to dramatically revamp the U.S. financial regulatory system.

Now, it is up to first the House and then the Senate, to tweak and some are hoping, completely overhaul, the White House’s regulatory proposal and have it ready for the President’s signature before years’ end.

These next few months promise to be highly contentious and filled with political rancor as Congress crafts new rules for the financial market. Whatever the final provisions, the financial regulatory reform bill will be the most sweeping remake of the government’s role to oversee financial institutions since the 1930s.

One of the major proposed changes will have direct significant impact on hedge funds, private equity funds and venture capital firms. Specifically, the President wants rules requiring advisers to hedge funds and other private pools of capital to register with the Securities and Exchange Commission (SEC). The largest of these funds, those with at least $30-million under management, could actually see regulation.

According to the Wall Street Journal, in addition to the hedge fund and private equity requirements, the financial regulation reform bill being considered by Congress would:

– Authorize the Federal Reserve to oversee almost all financial institution in the U.S., including firms’ foreign affiliates.

– Give the Fed more power over payments and settlement systems.

– Allow the Fed to oversee any commercial company that owns a banking charter.

– Give the federal government power to take over and wind down a large financial company.

– Mandate that large financial institutions raise more capital and meet higher liquidity standards.

– Create a financial services oversight council to fill gaps in supervision, coordinate data collection and coordination among bank regulators.

– Set up a new consumer protection agency with the ability to write rules related to mortgages, credit cards and other consumer products.

– Abolish the Office of Thrift Supervision and create a new national regulator for financial institutions.

– Suggest there be some sort of federal coordination of insurance regulation.

– Give the SEC and the Commodity Futures Trading Commission more authority to police and prevent fraud in the derivatives market. (List courtesy of the Wall Street Journal).

Both U.S. Sen. Chris Dodd (D-Conn.), chair of the Senate Banking Committee and his House counterpart, Rep. Barney Frank (D-Mass.), House Financial Services Committee chairman, acknowledge finalizing a bill of this magnitude won’t be easy.

It is expected the House will debate the bill over the next two months and call for a vote when it returns from summer recess in September.

The Senate could vote on the package in October.

“We will have it done this year,” promised Dodd.

(Sources: White House Press Office, NYT, Wall Street Journal, Politico, Web sites of Senators Dodd and Reed, Rep. Frank, Washington Post and Boston Globe)

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