The Obama financial-industry reform plan includes language that would dramatically restructure institutions often considered too big to fail – not to mention all other bank holding companies.  Stiff new limits on the degree to which banks could fund holding-company affiliates would sharply limit the value of insured depositories to securities, insurance and similar activities, adversely affecting bank funding for OTC-derivatives and other proprietary trading in affiliated holding-company subsidiaries.  New loan limits (applied to any credit risk, not just traditional loans) would also sharply decrease the ability of banks to support affiliates and large counterparties.  The measure would also impose new restrictions (without a grandfather) on who could own an insured depository, which would force many longstanding bank parent firms either to become BHCs (and shed commercial activities) or divest their banking operations – either of which would likely come at considerable cost.  The bill would also create new conflict-of-interest standards on banks that bar them from transactions with insiders.  It would also create a new assessment system for all insured depositories and holding companies.  While many of the bill’s provisions are controversial, they point not only to the Administration’s reform plans, but also to less high-profile actions bank regulators contemplate to break up too-big-to-fail banks and otherwise disentangle complex financial institutions.

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