Create new financial regulations

Financial regulation has House approval, awaits Senate

Updated: Wednesday, January 20th, 2010 | By Angie Drobnic Holan

The last time we checked on President Barack Obama's promise to create new financial regulations, the House of Representatives was considering a bill to more closely regulate the industry. Since then, the House has passed a bill and the proposal has moved to the Senate.

The House approved a measure 223-202 in a largely party-line vote on Dec. 11, 2009. All the House Republicans voted against the bill, joined by 27 Democrats. Only Democrats supported the measure.

The House bill was crafted in response to the economic collapse of a few of the biggest financial firms in the fall of 2008. The bill includes several measures:
• It gives the federal government the authority to take over and dismantle large, distressed financial companies if the institutions pose risks to the larger economy.
• It creates a Consumer Financial Protection Agency to regulate consumer financial products such as bank accounts, credit cards and mortgages. Democrats say that will be a robust watchdog agency defending ordinary consumers.
• It gives shareholders the ability to vote on executive compensation, otherwise known as a "say on pay" provision. But the vote would be nonbinding.
• It regulates derivatives, between dealers and what the bill considers "major swap participants." But it does not require all derivatives to be publicly traded.
• It creates a council of existing and new regulators who are asked to consult with each other to safeguard against systemic risk.
• It includes a variety of new rules for mortgage lenders, credit rating agencies and some hedge funds.

We wanted to note the latest development since this promise is among PolitiFact's Top 25 promises. The House vote does not change our rating, however. Obama's campaign promise is still In the Works.

Sources: Thomas, HR 4173, accessed Jan. 20, 2009

House Committee on Financial Services, Financial Regulatory Reform, accessed Jan. 20, 2009

Clerk of the House, roll call vote on financial regulatory legislation, Dec. 11, 2009

Obama presents detailed plan on financial regulation

Updated: Thursday, June 18th, 2009 | By Angie Drobnic Holan

President Barack Obama unveiled a detailed plan to overhaul regulations for the financial industry — including a new Consumer Financial Protection Agency — on June 17, 2009.

His plan also gives the government the power to regulate derivatives and intervene in large, interconnected financial institutions (not just banks). The Federal Reserve would receive new powers to police systemic risk.

The administration released an 88-page position paper outlining the proposal, and Obama delivered formal remarks before members of Congress, regulators and Cabinet secretaries to kick off the plan.

"Millions of Americans who've worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight," Obama said. "Our entire economy has been undermined by that failure."

His proposal has a way to go before becoming law. U.S. Treasury Secretary Timothy Geithner appeared before Congress the day after the plan was announced and fielded many questions about whether the plan was the best way to go.

Sen. Christopher Dodd, D-Conn., and the head of the Senate Banking Committee, raised concerns about giving additional regulatory powers to the Federal Reserve. Geithner responded that the new powers were modest and made sense given the Fed's other responsibilities.

We've designated this promise one of our Top Promises , and we'll be watching and providing more detail as the debate unfolds. This promise is still clearly In the Works.

Sources:U.S. Treasury Department, Financial Regulatory Reform: A New Foundation , June 17, 2009

The White House, Remarks by the President on 21st Century Financial Reform , June 17, 2009

U.S. Treasury Department, U.S. Treasury Department Releases "Financial Regulatory Reform: A New Foundation," June 17, 2009

Transcript, Senate Banking Committee Hearing, June 18, 2009

New York Times, Geithner on the Hill to promote financial overhaul , June 18, 2009

FinancialRecovery.gov

Geithner unveils proposal for new financial regulations

Updated: Friday, March 27th, 2009 | By Angie Drobnic Holan

Overhauling the regulation of the financial system is no small thing. So President Barack Obama's economic team is unveiling it in stages, starting with broad outlines instead of draft legislation.

U.S. Treasury Secretary Timothy Geithner unveiled an overall framework on March 26, 2009. The framework lists four core areas for reform: identifying systemic risk; protecting consumers and investors; eliminating gaps in our regulatory structure; and fostering international coordination.

Geithner discussed details on identifying systemic risk and promised the other sections would be fleshed out in the weeks ahead.

To address systemic risk, Geithner called for several changes to current law. He wants expanded regulatory power over financial firms other than banks, to oversee any "systematically important firm." Identifying those firms should be based on what they do, he said in testimony before Congress. 

"We must end the practice of allowing banks and other financial companies to choose their regulator simply by changing their charters; regulators must choose who to regulate," he said.

The government should also raise standards on capital and risk management; require the registration of hedge funds with assets under management above "a moderate threshold," begin comprehensive oversight for the over-the-counter derivatives market, and enact new requirements for money market funds.

We should emphasize that the Obama administration seems to be laying out guiding principles before draft legislation is made public. In other words, Obama has a long way to go. But the process has begun, and there seems to be broad agreement in Congress that some sort of regulatory overhaul is necessary. For now, we rate this promise In the Works.

Sources:U.S. Treasury Department, Treasury outlines framework for regulatory reform , March 26, 2009

U.S. House of Representatives Committee on Financial Services, testimony of Timothy Geithner , March 26, 2009