The new plan is expected to be released Wednesday. Our government would have new powers to seize key companies like insurance giant American International Group Inc. whose failure jeopardizes the financial system. Currently, the government’s authority to seize companies is mostly limited to banks.
“We had a system that proved too unstable, too fragile. . . . Those are things we have to change,” Treasury Secretary Timothy F. Geithner said Monday at an economic forum in New York.
In addition, the administration wants to impose regulation over the market for derivatives; the murky financial contracts used to hedge risky investments including new reporting and disclosure requirements. Institutions that originate loans would be required to retain 5% of the credit risk when the loans are turned into securities.
In the heat of the financial crisis last year, there were widespread calls for the government to merge several banking regulatory agencies into one to reduce gaps in oversight and stop what might be called “regulator shopping.”
For example, AIG was able to choose the Office of Thrift Supervision for its non-insurance financial business when it bought a small savings and loan in the late 1990s. That office has been viewed as a weaker regulator, and was strongly criticized in a government report this year for ignoring repeated warning signs about Pasadena-based IndyMac Bancorp before the thrift’s failure last summer.
Barbara Roper, director of investor protection for the Consumer Federation of America said, “I’m concerned that people think we’ve stepped back from the brink of disaster and so they’re not as committed to seeing real meaningful reforms adopted.”
Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents large financial institutions, said there was still a strong impetus in Washington for regulatory reform and dismissed the suggestion that the Obama administration had missed its chance to implement it.
“This has moved at lightning speed,” he said. “You’re talking about a historic piece of reform.”
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