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What are the new changes in financial regulation? First and foremost, President Obama wants to expand the powers of the Federal Reserve to assume primary responsibility for averting an new financial crisis.
Secondly, he wants to create a "council of financial regulators" who would improve coordination among agencies. The council would discuss systemic risks, but the Fed could at alone without its approval.
The administration has decided not to consolidate regulatory agencies due to the political fallout involved.
Another cornerstone of his program includes the reform of securitization markets and the now famous "say to pay" in which shareholders and regulators assess risks induced by compensation policies. In simple terms, shareholders could vote to control executive compensation.
Next, the FDIC would be granted special powers to wind down complex financial institutions, which would avoid Congress having to make these decisions.
With all of this rush to regulation, the S&P credit rating agency took the initiative and cut the ratings on 22 banks on Wednesday.
So then to summarize, the Fed will take control of regulation and be the primary agency to impose regulatory practices and sanctions. This of course, does not sit well with the bankers nor some members of Congress. The term used to describe the Fed's powers is "macroprudential." By the way, the government tends to invent new words when it wants to smooth over a major change in policy.
Should the Fed be granted these new powers?
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