Financial Regulatory Reform
The unveiling of the “Financial Regulatory Reform” plan by President Obama on Wednesday, June 17, 2009 touches almost every aspect of America’s financial life. Although it will take months for Congress to pass the proposals into laws and could take years for regulators to write all the rules concerning the enforcement of those laws, the financial landscape will have been radically revamped when it is done.
Credit Card Companies
The establishment of the Consumer Finance Protection Agency is expressly for guarding consumers from the deceptive practices of credit card companies. The arbitrary practices of the financial institutions behind the credit card companies have been one of the primary burrs that drove the proposal of the Consumer Finance Protection Agency.
Mortgage brokers and lenders will also be under close watch under the proposed Federal Government Oversight Council and Consumer Finance Protection Agency. The practice of writing bad mortgages and passing the risk off on investors will be stifled with the requirement that the lender retain a 5% piece of the stake in all mortgages they write. The Office of Thrift Supervision (OTS) will be eliminated. Largely as a result of its ineffectual and less than distinguished performance with IndyMac and Washington Mutual, the two biggest banking failures during the current financial crisis, which the OTS was responsible for regulating. The government-backed mortgage lenders Fannie Mae, Freddy Mac, and the Federal Home Loan Bank will be examined by the Treasury Department and the Housing and Urban Development Department. The two are to issue recommendations on the future of each of the agencies.
Business Bankruptcies
Under the Financial Regulatory Reform plan the “Financial Services Oversight Council” will monitor and supervise financial firms considered influential or big enough to create havoc in the national economy if they were to fail. Such companies will be required to keep more capital in reserve than is currently required and if they do suffer fatal losses the Federal Deposit Insurance Corp. will have the authority to step in and supervise the orderly dismantling of assets, if a resolution can not be found to preserve the company, in a way that will create the smallest possible impact on the investors. Another requirement written as a direct outcome of the events of the past six months is that shareholders will get an advisory vote on the compensation packages for financial utives. There are a number of financial institutions that are capable of setting off the domino effect such as what is being felt in the current financial crisis. The federal government is going to become an integral part of their corporate decisions and will have the ability to stop any high risk ventures that could possibly jeopardize their financial stability. Something the CEO’s have shown themselves unwilling or unable to do in the loose to no-regulation environment they previously enjoyed.
It is understood that with the new regulations limiting the amount of risk and creative financing which are allowed that credit will tighter and corporate growth slower than what Americans are used to seeing but the current feeling is that returning to the pre-boon norm of slow, steady growth is a good thing.
Coastal Credit Solutions, Inc. operates a financial market place that matches Consumers and Businesses with debt eliminating and/or alternative financing service providers. If you have over $5,000 personal or business credit card debt or are seeking small business financing, please call us 866-205-8370 for a FREE no obligation consultation.
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