Regulation Preview from Geithner

Problems loom on the regulation front as Secretary Geithner released more details on the administration’s plan. In this morning’s Washington Post, Geithner and NEC Chair Larry Summers have a “preview” of the updated proposal from the administration to overhaul financial services regulation. A full plan is to be laid out by President Obama later this week, but today we have eight parts of the plan (given in five points):

  1. Address liquidity concerns by raising capital reserve requirements and creating an even higher requirement for highly interconnected institutions
  2. Create a council of regulators “with broader coordinating responsibility across the financial system”
  3. Require “robust” reporting requirements for security issuers
  4. Require the originator of a securitization to retain some level of financial interest
  5. Regulate derivatives
  6. Create a “stronger framework” for financial products to protect consumers
  7. Authorize “resolution” powers to allow a particular agency to take over any firm deemed threatening to systemic stability
  8. “Lead the effort to improve regulation and supervision around the world”

This plan largely mirrors the one Geithner laid back in March. Hedge fund oversight wasn’t mentioned, but it will likely be part of the final proposal. Also absent was discussion of mutual funds, and this might be a good sign. The money market mutual fund industry has done a lot on its own to tighten restrictions on itself and removed the need for government action (though many in the MMMF industry still want it and others don’t). The administration has backed down from proposing massive consolidation of bureaucracy, but the changes will still be sweeping and epic in scope.

Over the past two weeks I’ve discussed a lot of these proposals: capital reserve requirements, regulating mutual funds, and the problem with a systemic risk or financial products regulator. I’ve also emphasized that the road to recovery is avoiding overreaction regulation and ensuring a clear role of government to defeat “too big to fail” philosophy. My colleague Sam Staley has also written a bit on the topic.

On Friday last week I posted a review of the GOP’s financial services regulation plan. Look for the President’s speech later this week and subsequent review here at Out of Control.