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New oversight proposed for financial system

July 23, 2009

President Obama’s Systemic Risk Oversight Proposal
Provides Critical Protection for U.S. Economy

WASHINGTON, D.C. — A new proposal announced by the Treasury Department would give the Federal Reserve Board new oversight authority to ensure that financial holding companies do not put the economy at risk as a result of bad business practices. The proposal represents a critical step towards closing the gaps in the financial regulatory system that let the choices of a few companies threaten the U.S. economy, according to Consumers Union, the nonprofit publisher of Consumer Reports.
“This proposal will help prevent another AIG-type debacle by imposing standards and oversight on financial holding companies whose size, structure, or practices could create risk to the U.S. financial system,” said Gail Hillebrand, Consumers Union’s Financial Services Campaign Manager. “Stronger systemic risk oversight combined with the proposed Consumer Financial Protection Agency (CFPA) to address household risk, will do much to ensure that we never again see the types of problems caused by irresponsible lending practices and too much leverage.”
The Treasury Department proposal designates nonbank companies which could pose a threat to U.S. or global economic stability as Tier One Financial Holding Companies. These companies posing special risk would be subject to higher standards than bank holding companies, including capital requirements, leverage restrictions, risk management, and requirements that the firm be well managed, with appropriate examination and enforcement. Those standards would be developed by the Federal Reserve Board in consultation with a Financial Services Oversight Council composed of federal financial regulators. Consumers Union also emphasized that the new proposal gives broad new responsibilities to the Federal Reserve Board.
“With all of these new responsibilities for the Fed in reducing systemic risk, it is more important than ever to create a new Consumer Financial Protection Agency so that consumer protection will be front and center rather than at the end of a long list of the Fed’ regulatory responsibilities,” said Hillebrand.
For a copy of Consumers Union’s letter in support of the Consumer Financial Protection Agency, see: http://www.defendyourdollars.org/2009/07/consumers_union_letter_in_supp.html
Gail Hillebrand or Michael McCauley: 415-431-6747