Financial Services sector Adult Supervision and Re-regulation Act - NYT

[JohnWxy]

http://topics.nytimes.com/topics/reference/timestopics/subjects/c/credit_crisis/financial_regulatory_reform/index.html">Financial Regulatory Reform

The near-collapse of the world financial system in the fall of 2008 and the global credit crisis that followed gave rise to widespread calls for changes in the regulatory system. In June 2009 President Obama proposed sweeping reform legislation. In December, Democrats in the House passed a bill largely along the lines he proposed. In the Senate, the bill stalled during bipartisan negotiations that ultimately failed and Democrats introduced their own legislation. The bill went to the Senate in late April 2010 after Republicans blocked the start of debate for three days.

To reduce the odds of a future crisis, the Democratic plans would take three basic steps. First, regulators would receive more authority to monitor everything from mortgages to complex securities. This is meant to keep future financial time bombs, like the no-documentation loans and collateralized debt obligations of the past decade, from becoming rife. Second, financial firms would be forced to reduce the debt they take on and to hold more capital in reserve. This is the equivalent of requiring home buyers to make larger down payments: more capital will give firms a bigger cushion when investments start to go bad. Finally, if that cushion proves insufficient, the government would be allowed to seize a collapsing financial firm, much as it can already do with a traditional bank. Regulators would then keep the firm operating long enough to prevent a panic and slowly sell off its pieces.

In addition, the Democratic bills would impose regulations on derivatives, the complex financial instruments credited with amplifying the credit crunch; most trading would be required to take place through open marketplaces.

In late April, Republicans introduced a bill of their own. It mirrored much of the Democratic measure, but would bar the consumer protection agency from regulating small banks or non-financial companies; would put the cost of shutting down large institutions squarely on creditors and shareholders; and tighten regulation of Fannie Mae and Freddie Mac, the mortgage giants, provisions that were not included in the Democrats' proposal.