Regulation for Financial Giants Expected Soon

Strategic Insights -

The White House and Congress are working on a legislation that will allow the federal government to take over and unwind the businesses of large financial institutions like American International Group (AIG), similar to the FDIC's 'bridge bank' powers. This move comes amidst public outrage over AIG's bonuses and President Obama's statement on developing tools to prevent similar situations in the future. The legislation is expected to be crafted urgently, with Fed Chair Ben Bernanke's emphasis on 'orderly resolution of systemically important financial firms' and the UK's Financial Services Authority Chairman, Adair Turner, submitting a proposal for a new regulatory regime for the financial services industry.

Key Takeaways:

  • The proposed legislation will grant the federal government the authority to take over and unwind large financial institutions, similar to the FDIC's 'bridge bank' powers.
  • The move comes in response to public outrage over AIG's bonuses and President Obama's statement on developing tools to prevent similar situations in the future.
  • Fed Chair Ben Bernanke has emphasized the importance of 'orderly resolution of systemically important financial firms' in regulatory reforms.
  • The UK's Financial Services Authority Chairman, Adair Turner, has proposed a new regulatory regime for the financial services industry, including the establishment of a new European Independent Regulatory Authority.
  • The proposed legislation will also address the need for coordination among national supervisors to oversee the risks of financial behemoths like Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C).
  • A systemic-risk regulator, either the Federal Reserve or the FDIC, may be vested with the authority to seize and restructure critically impaired firms before they threaten the broader system.

Statistics:

  • 11-28-2008: Comtex SmarTrend indicated an UPTREND for BAC at $15.90.
  • 12-15-2008: Comtex SmarTrend indicated a DOWNTREND for JPM at $28.98.
  • AIG bonuses sparked public outrage, leading to the development of the proposed legislation.
  • 03-17-2009: The Comtex SmarTrend Alert indicated an UPTREND on 11-28-2008 for BAC.
  • 03-17-2009: The Comtex SmarTrend Alert indicated a DOWNTREND on 12-15-2008 for JPM.

Sources:

  • Zacks Investment Research
  • CNBC
  • Comtex News Network, Inc.
  • Financial Services Authority (UK)
  • White House
  • Congress