“Treasury Secretary Geithner’s Proposed Comprehensive Regulatory Framework for Over-the-Counter Derivatives”

On May 13, 2009, in a letter to Congressional leaders, Treasury Secretary Timothy Geithner presented an outline of a new comprehensive regulatory framework for over-the-counter (“OTC”) derivatives (the “Proposed Framework” or the “Framework”), which under current law are largely excluded or exempted from regulation. Citing the problems experienced by AIG, the Treasury Department’s summary of the Framework states that, in the absence of regulation, OTC derivatives could create massive risks for the financial system.

The purpose of the Framework, which was developed by the Treasury Department in conjunction with the Commodity Futures Trading Commission, the Securities and Exchange Commission and other federal regulators, is to give regulators the tools they need to prevent such problems from occurring again. This Stroock Special Bulletin highlights the key aspects of the Proposed Framework and concludes with a brief review of some of the initial industry and political reactions to it.