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Highlights: Obama's Proposed Financial Fix

A look at President Barack Obama's plan to improve oversight of the financial industry:
  • Creates a council of regulators called the "Financial Services Oversight Council" to monitor risk across the financial system. The council will be chaired by the treasury secretary and include the heads of existing federal financial regulators, the Federal Reserve among them, and representatives of new regulators.
  • Establishes a Consumer Financial Protection Agency to protect consumers from deceptive practices by such companies as credit card lenders and mortgage brokers.
  • Gives new authority to the Federal Reserve to supervise firms considered so big or influential that their failure could topple the economy.
  • Creates a system to dismantle a troubled firm. Once the Fed and the Treasury Department decide an institution is a threat to the economy, the Federal Deposit Insurance Corp. would step in to break it down and sell its assets with minimal impact on investors.
  • Establishes a National Bank Supervisor to monitor all federally chartered banks and federal branches of foreign banks. The Fed and FDIC would retain their existing roles in helping to supervise state-chartered banks.
  • Eliminates the Office of Thrift Supervision. Critics say the office's oversight of American International Group and IndyMac was too lax and contributed to their demise.
  • Retains the Securities and Exchange Commission and Commodity Futures Trading Commission as market regulators. However, the SEC would no longer have a role in supervising large holding companies as it did in monitoring Lehman Brothers and Bear Stearns. That role would be turned over to the Federal Reserve.
  • Gives the SEC oversight of hedge funds and other private pools of capital, including venture capital funds.
  • Requires financial institutions to retain more capital when making risky investments.
  • Calls for regulation of "over-the-counter derivatives," such as the insurance-like contracts that felled AIG. The plan leaves in question who would regulate them.
  • Aims to deter lenders from writing bad mortgages and passing the risk off to investors by requiring that lenders retain a 5 percent stake in all asset-backed securities.
  • Requires that shareholders get to vote on compensation packages for financial executives.
  • Creates an office within the Treasury Department to review the regulation of insurance companies, now done primarily by states.
  • Calls on the Treasury Department and the Housing and Urban Development Department to make recommendations on the future of government-backed mortgage lenders Fannie Mae and Freddie Mac and the Federal Home Loan Bank system.
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