FedFin has reviewed the details of the White House’s financial-industry
reform initiative – and what a sweeping one it is.  Future reports will
assess its market impact and political prospects, as well as offer our judgment on
the policy merits of the wide array of changes detailed by the President and
Treasury Department.  In this report, though, we advise clients not only of the
highlights of the plan getting broad attention – the new systemic-risk framework,
single-bank charter  and consumer agency, for example – but also of many of the
critical details buried in the lengthy report.  These show the clear hand of
substantive experts working with the FRB, other banking agencies, the SEC and
CFTC.  Each of these agencies wins and loses some in the White House plan, but
Treasury will clearly take a far larger role in the full array of financial issues than
ever before.  Importantly, much in the plan can be done under current law, with
Treasury taking the lead and setting deadlines on issues such as new capital
standards, securitization requirements and hedge-fund/private-equity restrictions.  
Other changes require law, but Treasury won’t let the process stop while Congress
deliberates.  Clearly aware of problems that occur when a law takes months to
pass and then regulatory deadlines are tied to lengthy post-enactment periods,
Treasury has dictated action by affected regulators now to plan ahead for how
they would comply with the new law even as Congress determines whether to  
finalize it.  These deadlines are all very short, with the longest one in the plan set
for a decision early next year on what to do with the GSEs.

As detailed in this report, the plan goes far beyond banking and other issues
Treasury has previously addressed (e.g., compensation and derivatives) to new
issues such as insurance regulation.  While stopping short of a federal charter, the
plan would bring big and small insurers under far more federal regulation.  
Money-market mutual funds would get a makeover, as would providers of
settlement-and-clearing systems (although the FRB didn’t get the federal charter
for which it has pushed).  The FRB in fact will also get a makeover, not only
because of all of its new powers, but also because Treasury is proposing to take
some away.  This could not only redefine the FRB’s supervisory and consumer
functions, but also force a far tougher line on separating banking and non-banking
activities (including OTC dealing) than ever before.  Importantly, Treasury would
not grandfather any non-conforming firms, which would force profound industry
restructuring over the next five years if Congress concurs….

The full text of this report is available to subscription clients.