On the contrary the markets should be enhanced

Oversee the riskier institutions, make more transparent markets, regain the confidence of consumers and provide the State of tools to manage financial crises, these are the main areas of financial services reform announced yesterday by Barack Obama. President wishing that the text be adopted this year, this reform will be presented to Congress as an imperative that cannot suffer from delay. "It is the largest financial reform ever undertaken since the great depression," Barack Obama said yesterday. (...) With clearer rules, innovation will not be depleted. On the contrary, the markets should be enhanced. "The magnitude of the economic crisis has revealed such faults and such weaknesses in the supervision of financial institutions that reform has become for the new administration also matters that the stabilization of the financial system.

Anxious to prioritize problems, the administration proposes five axes: the redesign of the supervision of the banking system, a strengthening of the regulation of markets, the creation of an agency for the protection of consumers for financial products, the implementation of tools to manage financial crises and the development of international standards.

The most salient aspects of the reform are the redesign of the supervision of financial institutions and the creation of a consumer protection agency. Result of intense discussions with the various players in the world political and financial in recent weeks, the new proposed regulatory framework is not that different from the previous, because the administration chose to simplify things rather than any upset to be sure to act fast.

More stringent rules

Several agencies will therefore continue to share the supervision of banks. "It is a good thing, the Federal Reserve already has a lot of power and in addition she has missed the start of the crisis, note Elisa Parisi-Capone, an economist at RGE Monitor." Nothing says that this will not happen. In addition, some of its members are appointed by the banks. It seems to me so well that the supervision continues to be shared between different agencies.

The Federal Reserve is nevertheless given additional powers (read opposite) overseeing all holdings of large corporations that can pose a systemic risk. Now, institutions such as the insurer MetLife or large commercial banks such as JPMorgan Chase will depend on the Fed. A charge for the latter to apply more stringent rules on capital and liquidity levels. The SEC will no longer monitor the investment banks, which will be under the control of the Federal Reserve, while the FDIC will continue to supervise banks in each State and savings. In the event that one of the institutions posing systemic risk would be bankrupt, as was the case of Lehman Brothers, the Fed would have authority to organize the implementation supervision, which is then managed by the FDIC.

Very challenged as poorly supervised institutions like AIG, the Office of Thrift Supervision (OTS) disappears, and will be melted in the Office of Comptroller of the Currency to form a new regulator: the National Bank Supervisor.

Regulated products

Another organ of guardianship is created to fill gaps in the regulatory and determine the institutions that fall under the yoke of the Fed. It is the Financial Services Oversight Council, which will depend on the Treasury and will be composed of the President of the Fed, the directors of the National Bank Supervisor and agency of protection of consumers, the Presidents of the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) as well as the Director of the Federal Housing Finance Agency (FHFA).

The great another novelty, which will meet a relatively high resistance to financial lobbies, is the creation of the consumer protection agency. It is going to be powerful, with some powers of the Federal Reserve, and can regulate the relations between financial institutions and consumers on a wide range of financial products (mortgage, credit cards, accounts-cheques, etc.). In the future, contracts must be easy to understand for clients, some commissions daily applied today will be banned and lenders should directly assume 5 of the financial risk. "It had to do so, observes Elisa Parisi-Capone,"because most of the innovations are made outside the regulatory framework." At least, the products sold to consumers will be regulated.