THE OBAmA WHITE PAPER ON FINANCIAL REgULATORy REFORm
On June 17, 2009 the Obama Administration released its proposal for strengthening the regulation of U.S. financial markets. The Administration’s White Paper proposes: (i) a new Financial Services Oversight Council of regulators to identify emerging risk and coordinate interagency cooperation; (ii) new authority for the Federal Reserve to supervise all firms that could pose systemic risk (referred to as “Tier 1 FHCs”), including firms that do not own a depository institution; (iii) stronger capital, liquidity and other prudential standards for all financial firms and yet-higher standards for Tier 1 FHCs; (iv) a new National Bank Supervisor to supervise all federally chartered depository institutions and federally licensed branches of foreign banks (essentially a merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency); (v) the elimination of the federal thrift charter and the OTS; (vi) regulation of parents of industrial banks, thrifts, credit card banks and trust companies as bank holding companies; (vii) regulation of the OTC derivatives market, including credit default swaps; (viii) the registration with the Securities and Exchange Commission of advisers to all hedge funds, private equity funds and other pools of capital (apparently including such advisers as CDO and CLO managers), (ix) the reporting of information by these advisers about their managed funds to enable an assessment of whether these funds pose a risk to financial stability and (x) the creation of a new Consumer Financial Protection Agency with broad new powers to regulate the sale of financial products. The White Paper, including “fact sheet” summaries of its principal recommendations, can be found at http://www.ustreas.gov/ news/index1.
This Client Alert will not attempt to replicate the White Paper’s own summaries. Rather, it highlights aspects of the proposals that, if adopted, are likely to have important practical consequences to financial market participants. These aspects are the following:
1. Prepare for capital increases. The proposals are replete with references to the need to increase capital requirements. Tier 1 FHCs would become subject to “more stringent” requirements on their capital. A working group led by Treasury would conduct a “fundamental reassessment of the design and structure of existing regulatory capital requirements” for banks and BHCs (presumably leading to changes in the U.S. implementation of the Basel II framework). All FHC’s would be required to meet “well capitalized” standards on a consolidated basis, not just as to their subsidiary banks. Customized OTC derivatives would be subject to “higher capital charges.”
June 19, 2009
For further information about this Client Alert, please contact:
Winthrop Brown +1-202-835-7514 WBrown@milbank.com
This Client Alert is a source of general information for clients and friends of milbank. Its content should not be construed as legal advice, and readers should not act upon the information in this Client Alert without consulting counsel. © 2009, milbank, Tweed, Hadley & mcCloy LLP. All rights reserved.
Attorney Advertising, prior results do not guarantee a similar outcome.