Comprehensive Plan for Financial Regulatory Reform Unveiled by Treasury Secretary

Treasury Secretary Timothy Geithner presented a broad plan for financial regulatory reform before the House Financial Services Committee, outlining four key areas for reform: systemic risk, consumer and investor protection, eliminating gaps in the regulatory structure, and international coordination. The plan aims to strengthen oversight and regulation of the financial industry, particularly in areas such as private investment funds, derivatives markets, and money market funds. Geithner's plan received a mixed reaction, with some changes sparking debate among regulatory experts and industry leaders.

Key Takeaways:

• The Treasury plan covers four broad areas: systemic risk, consumer and investor protection, eliminating gaps in the regulatory structure, and international coordination.
• The plan proposes establishment of a Systemic Risk Regulator with authority to seize and restructure impaired firms like AIG before they threaten the broader system.
• Private investment funds with assets over a certain threshold will be required to register with the SEC, expanding regulatory oversight.
• The OTC derivatives market will be subject to a comprehensive framework for oversight, with requirements for central clearing and margining.
• Money market funds will face stronger requirements to reduce the risk of withdrawals of funds, improving investor protection.
• The plan aims to strengthen resolution mechanisms for potential failure of large complex financial institutions, such as Bank of America, JPMorgan Chase, and Citigroup.
• The Treasury will work with the Federal Reserve, the President's Working Group on Financial Markets, and Congress to implement the plan.
• The framework for regulatory reform will be detailed in the coming weeks, with Geithner focusing on systemic risk reforms in his initial testimony.

Statistics:

• The market for CDS has ballooned to trillions of dollars, with minimal regulation.
• Private investment funds control vast pools of capital, with the majority falling outside current supervisory structures.
• The proposed plan aims to register private investment funds with the SEC under a certain threshold.
• The Treasury plan will engage international coordination to enhance regulatory oversight of financial institutions.

Sources:

• Zacks Investment Research, "Treasury Unveils Comprehensive Plan for Financial Regulatory Reform", March 27, 2009 (via COMTEX)
• Comtex News Network, Inc., SmartTrend Alert, March 23, 2009
• Zacks Investment Research, Dirk van Dijk's blog, "More Analysis on Treasury's Plan for Regulatory Reform"