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  • 2.

    The end of preemption? The White Paper proposes a significant erosion if not an elimination of federal preemption at least as to products and services to be regulated by the new Consumer Financial Protection Agency. Its rules are to constitute a “floor, not a ceiling.” States are to be given the authority both to enforce federal law regardless of charter and to adopt “stricter rules for institutions of all types.”

  • 3.

    Interstate branching. In what is perhaps the White Paper’s sole deregulatory proposal, the thrift charter and the OTS would be abolished but national and state-chartered banks would gain thrifts’ more generous interstate branching powers through the elimination of states’ restrictions on interstate branching.

  • 4.

    Expansion of 23A restrictions. Current restrictions on banks’ transactions with affiliates are to be “strengthened.” They would be extended for the first time to derivative transactions, a move deferred when Regulation W was first adopted, and would be applied to transactions with investment funds sponsored or advised rather than those sponsored and advised by an affiliate. The Federal Reserve’s power to grant exemptions under section 23A would be curtailed to an unspecified extent.

  • 5.

    Accounting standards. Accounting standards are to be reviewed with a view to “more forward-looking loan loss provisioning practices” and greater disclosure of “the cash flow management expects to receive from investments.”

  • 6.

    Skin in the securitization game. Federal banking agencies are to issue regulations requiring “loan originators or sponsors to retain five percent of the credit risk of securitized exposures.” It is unclear how this requirement would apply to the originators of loans that might end up in a securitized product.

  • 7.

    National insurance charter? The Administration reportedly backed down on an early proposal to create a national insurance charter. The White Paper stops short of recommending a national charter but, by proposing a new Office of National Insurance within Treasury and urging “increased national uniformity through either a federal charter or effective action by the states,” invites Congress to take this step with the Administration’s support.

  • 8.

    Questions for non-U.S. banks and other non-U.S. financial firms. The White Paper opens the door to the treatment of foreign banks and, possibly, other non-U.S. firms as Tier 1 FHCs. Foreign financial firms “whose U.S. operations pose risks to the U.S. financial system will be subject to the same robust prudential regulation and oversight” as comparable U.S. firms.

  • 9.

    Executive compensation guidelines for all financial firms. Federal regulators would have the authority to set standards “to better align executive compensation practices of financial firms with long-term shareholder value.” All federal regulators will be supported by Treasury in this effort, including the SEC with respect to investment banks and now-to-be-registered hedge fund managers.

10. Nonfinancial activity restrictions for all Tier 1 FHCs. The White Paper does not propose any liberalization of the current ability of private equity firms to invest in BHCs and banks. Indeed, it proposes that all Tier 1 FHCs be subject (after a five-year transition period) to the non-banking prohibitions of the Bank Holding Company Act, thus raising the possibility that systemically significant hedge and private equity funds could become subject to these activity restrictions even without investing in a BHC or bank.


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