SWEEPING REFORM TO U.S. FINANCIAL REGULATORY SYSTEM? Don't Hold Your Breath!
CRITICISM BY STATE REGULATORS, SMALL BANKS, LEGISLATORS MIGHT EQUAL LONG FIGNT AHEAD!
Yesterday, at the Cash Room of the U.S. Treasury in Washington DC, Treasury Secretary Henry Paulson presented the details of the Bush Administration's proposed changes to the U.S. system of financial regulation. Paulson's proposals would give greater oversight authority to the Federal Reserve Board, on such matters as the oversight of small state-chartered banks, mortgage brokers, and insurance companies.
There is much opposition to Paulson's proposals. Smaller banks fear the new regulatory structure would favor the largest, national institutions. The Attorneys General of several states fear their authority over insurance companies would be short-circuited. Many fear over-regulation at the Federal Level would not be in the best interest of state and local finance and insurance institutions.
Paulson's proposals would come in three phases. In the first phase, the scope of The President's Working Group on Financial Markets would be exanded to include the entire sector of finance, not those simply focused on financial markets.
A federal Mortgage Origination Commission would set minimum standards for licensing of loan originators in each state, and a federal authority would be set up to enforce mortgage lending laws. Finally, the Federal Reserve Board would have examination authority over state and local non-bank institutions who have access to the federal lending system.
A second phase of the re-orginization would include federal oversight of banks chartered by states. The Fed would gain oversight of payment processing and the transfer of securities. Also, and importantly, an Office of Insurance Oversight would be created to oversee the Insurance Industry at the national level.
Eventually, the system would evolve into a third, final phase. Financial and insurance institutions would have one of three simplified Federal Charters - one for Depository Institutions (banks, and the like), one for Insurance Companies, and one for providers of Financial Services. It is unclear, at this point, where organizations such as Employee Credit Unions would fall under this scheme.
One key objectives of these proposed overhauls, says Paulson, is to prevent recurrence of the sub-prime lending meltdown, and the inconsistent authority adminstered by state-level regulators. His plan, he says, will not immediately solve the current U.S. housing crisis. He says that other new measures will be proposed to help solve the housing crisis quickly.
Through all of the debate, however, one fact remains clear - financial oversight reforms will not come quick, and will face stiff oppostion on the way to implementation.
Read Damian Paletta and Elizabeth Williamson's article in today's Wall Street Journal for details and relevant links. Click here to view Secretary Paulson's outlined vision for financial oversight reform.
DEAN MOSS & DEAN'S TEAM CHICAGO
