RTTNews - President Barack Obama's economic team outlined a new international approach to regulation Monday, unveiling their plan in an op-ed piece published in the Washington Post. The landmark financial regulation plan addresses, capital requirements for financial institutions, systemic risk, and the need for a more unified global approach to market regulation.
We will lead the effort to improve regulation and supervision around the world, Treasury Secretary Timothy Geithner and National Economic Council Chairman Larry Summers said. We live in a globalized world, and the actions we take here at home -- no matter how smart and sound -- will have little effect if we fail to raise international standards along with our own.
Overall, the pair promised that the plan offers a stronger framework for consumer and investor protection. The fully detailed version of the regulatory overhaul will be released on Wednesday. A central part of the plan appears to be raising liquidity and capital requirements, after a lack of such buffers led to the failure of many banks and financial institutions and sparked a global credit crunch.
Geithner and Summers wrote that the reforms will be raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms.
Those large and interconnected firms, often viewed as too-big-to-fail will be another focus for the administration. As Summers said in a speech Friday, the financial system is not fail safe until it is safe for failure.
Therefore, those institutions whose potential failure threatens the entire system will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system, they said, building a resolution mechanism that allows for the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system.
Although the authority will be limited in its use to only extraordinary circumstances, the option for resolution will help ensure that the government is no longer forced to choose between bailouts and financial collapse.
In addition the largely unregulated derivatives markets will be subject to robust reporting requirements on the issuers of asset-backed securities which will allow investors to depend less on credit ratings agencies.
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, the piece read.
Previously, lawmakers had considered mandatory clearinghouses for swaps markets, such as the Credit Default Swap (CDS) market.
Those reforms, plus a focus on stronger consumer and investor protection, will complete one of the largest overhauls of the financial regulatory system since the Great Depression.
The pair recognized the critical moment, stating that now is the time to act in order to salvage and strengthen the U.S. financial system.
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