A Primer on Financial Regulatory Reform

    31 July 2009

    In response the credit crisis of 2007 and the national housing bubble, the Federal government has worked feverishly to avert a full-scale financial services industry meltdown and prevent the next “Great Depression.” The Federal Reserve cut interest rates to unprecedented lows, the Department of Treasury bought ownership stakes of the nation’s largest financial institutions, and “too big to fail” entities were given financial life preservers to stay afloat. While these actions helped to prevent catastrophic economic collapse and stabilize the nation’s financial system, the need for full scale financial services regulatory reform became readily apparent. Although outcries for massive regulatory reform began in 2007, the United States Presidential election of 2008 delayed both comprehensive legislative and administrative response. In 2009, Democrats enjoy not only the Presidency of the United States, but sizable majorities in the U.S. Senate and the U.S. House of Representatives. Under this leadership, the United States is undertaking the world’s largest financial services regulatory overhaul, with global implications.

    This primer identifies and discusses major themes of the proposed regulatory reform in an effort to provide context to the debates that will surround the process as it unfolds throughout the latter half of 2009. For each issue, this report reviews current financial crisis recommendations and actions of the Obama Administration and the U.S. Congress, along with references to global organizations such as the G-20 and G-30, the Treasury, the President’s Working Group, and the Emergency Economic Stabilization Act of 2008 (“EESA”) Congressional Oversight Panel. In addition, this paper provides an outlook of potential regulatory or legislative developments in a particular area of interest.

    By way of background, the 111th Session of the United States Congress began on January 3, 2009. This Congress has passed, in piecemeal, various forms of regulatory reform and will undertake a full regulatory overhaul this fall. The Obama Administration released its proposal, Financial Regulatory Reform, a New Foundation: Rebuilding Financial Supervision and Regulation, to Congress on June 17, 2009.1