“Obama Administration Financial Regulatory Reform Proposal”

On June 17, the Obama Administration released its white paper titled “Financial Regulatory Reform. A New Foundation: Rebuilding Financial Supervision and Regulation” (the Plan), outlining its proposal to revamp the regulatory landscape for financial services in the United States. The Plan would significantly re-write the regulatory framework for banks and other players in the financial services industry, and extend federal regulation to sectors of the industry that have historically operated under unobtrusive, captive, or in some instances absent, regulatory schemes. A central element of the Plan is establishment of a new category of regulated entity, the “Tier 1 FHC”. Tier 1 FHCs are entities that, due to “their combination of size, leverage, and interconnectedness,” have the potential to inflict far-reaching damage or dislocation in the marketplace if they were to fail. Tier 1 FHCs would be subject to closer scrutiny, higher reserve requirements, tighter prudential oversight, and other enhanced regulation beyond that imposed on other players in the financial industry. The Plan leans heavily on granting regulatory power to the Federal Reserve as the nation’s systemic risk watchdog and regulator. This Stroock Special Bulletin presents an outline of the primary regulatory players in the Administration’s proposal, a description of the salient points of the Plan, and a timeline for actions called for in the Plan.