The Regulatory Reform Marathon

The Obama Administration is currently on the legislative leg of the regulatory reform marathon that began earlier this year with the release of its Rules of the Road and continued with its White Paper on Financial Regulatory Reform. The Obama Administration released last week its legislative text to implement many elements of the White Paper. Overall, the Administration’s proposed legislation hews closely to the White Paper, though it provides important details in a number of areas where the White Paper was more general. The proposal would expand the Federal Reserve’s powers to include those of a systemic risk regulator, and create a new interagency Financial Services Oversight Council to assist the Federal Reserve in its new mission.

No sooner had the proposed legislation been released, however, than critics began to pull apart the proposals in commentary and through counterproposals. FDIC Chairman Sheila Bair criticized aspects of the proposal to appoint the Federal Reserve as systemic risk regulator, and SEC Chairman Mary Schapiro argued that a council of federal regulators, on which the SEC would have a seat, should have enhanced authority. The House Republicans proposed their own regulatory reform legislation, which contained a number of alternative proposals, including to limit the Federal Reserve’s authority to overseeing monetary policy, to transfer all of the Federal Reserve’s current regulatory authority to a new financial institutions regulator, and to fundamentally reform Fannie Mae and Freddie Mac. House Financial Services Committee Chairman Barney Frank argued that the federal thrift charter should not be abolished, even if the OTS were merged into the OCC in the form of a new national bank supervisor.

This memorandum, The Regulatory Reform Marathon, available here, builds on the analysis in our memorandum on the White Paper, A New Foundation for Financial Regulation?, by discussing the Obama Administration’s proposed legislation and the Republican counterproposal. Specifically, the memorandum discusses the Administration’s proposals for managing systemic risk, including the revised proposal for resolution authority and the proposal to designate certain large, systemically important financial companies as Tier 1 FHCs, subject to enhanced supervision and regulation by the Federal Reserve. The memorandum also discusses the Administration’s proposal to merge the OTS and the OCC, to eliminate the thrift charter, and to expand interstate branching; to expand bank and bank holding company regulation to include holding companies of insured depository institutions that have not otherwise been regulated as bank holding companies; and to enhance standards applicable to, and restrictions on, banks and bank holding companies. The memorandum also contextualizes other proposed regulatory enhancements, including the Administration’s proposal to give the Federal Reserve additional authority over payment, clearing and settlement systems and activities; the proposed reform of the asset-backed securitization markets; and the proposal to create an Office of National Insurance within the Treasury Department.