Obama Financial-Overhaul Plan Seeks Global Market Stability
June 17 2009 - 3:17PM
Dow Jones News
The Obama administration's financial-overhaul plan includes
numerous proposals to stabilize global markets during future
financial crises.
More goals than mandates, the suggestions are aimed both at
international governing bodies and individual foreign countries.
The proposals often echo commitments recently made at the Group of
20 meeting in London last spring.
The suggestions focus largely on making international banks more
stable. They also call for supervising major multinational
companies and developing methods to cope with cross-border
financial crises.
It also seeks clear, simple guidelines for some of the complex
financial transactions that prompted the international meltdown,
like the use of credit derivatives, contracts that propose to help
protect the holder against risk.
President Barack Obama released his regulatory plan, "Financial
Regulatory Reform: A New Foundation," at a White House event
Wednesday. Many key recommendations will require Congress to
act.
The administration hopes to encourage international banks to
build up a larger reserve of capital during good economic times to
cushion them in downturns. To this end, the Obama plan recommends
that the Basel Committee on Banking Supervision develop a better
set of guidelines for how banks handle their capital and exposure
to risk.
On international oversight, the plan proposes to standardize the
international use of complex instruments like credit derivatives
and regulate over-the-counter derivatives, which are typically
traded through informal dealer networks.
The biggest global financial institutions would also receive
more scrutiny through "supervisory colleges," which regulate the 30
most significant firms and share information.
Countries are encouraged to tighten their oversight of credit
rating agencies and pare down the number of conflicts of
interest.
To improve crisis management, the administration urges the Basel
Committee to work with countries to improve responses to
cross-border crises, like the failure of a major multi-national
financial institution.
Stronger standards for capital, liquidity and risk management
would apply to foreign financial institutions that either have
branches that operate in the U.S. or affect the U.S. market. The
plan proposes to permit the Federal Reserve and the Treasury to
determine these new requirements.
Countries are encouraged to implement stricter disclosure
requirements for hedge funds. Adding to the G-20 recommendation,
the Obama plan also urges advisers to venture capital and other
private pools of capital to register and disclose their
record-keeping.
The plan also calls for strengthening the Financial Stability
Board, recently revived by the Group of 20 at its London meeting.
In addition, the Obama plan urges countries to make better
compensation guidelines to control risk taking.
Following a G-20 recommendation, countries are urged to impose
tougher money-laundering standards and do a better job exchanging
tax information. Finally, the administration recommends simplifying
international accounting guidelines and working to create "a single
set of high quality global accounting standards."
-By Kristina Peterson, Dow Jones Newswires; 202-862-6619;
kristina.peterson@dowjones.com