Overview Of Obama Plan For Tightening US Financial Regulation

Below are the main provisions as outlined by administration officials and as detailed in a document obtained by Reuters.

ELIMINATE THRIFT CHARTER, CREATE NATIONAL BANK SUPERVISOR
Bank regulation would be streamlined with a new National Bank Supervisor assuming the functions of both the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The plan would eliminate the charter for thrifts that underlies that U.S. savings and loan industry.

CREATE SYSTEMIC RISK REGULATOR

The plan would make the Federal Reserve the consolidated supervisor of large, systemically important and interconnected firms.

CREATE FINANCIAL SERVICES OVERSIGHT COUNCIL
Chaired by the Treasury Department, the council would fill regulatory gaps in the system. It would replace the President's Working Group on Financial Markets and would play a role in identifying systematically important firms to be regulated by the Fed. In addition to the Treasury secretary, the council would consist of the chairman of the Federal Reserve, the director of the new National Bank Supervisor, the director of the new Consumer Financial Protection Agency, the chairman of the Securities and Exchange Commission, the chairman of the Federal Deposit Insurance Corp and the director of the Federal Housing Finance Agency.

MORE STRINGENT CAPITAL AND LIQUIDITY STANDARDS
Financial institutions would have to strengthen their capital cushions to absorb losses when times are tough, and make themselves more liquid, or be able to move quickly in and out of various holdings, "with more stringent requirements for the largest and most interconnected firms

SECURITIZATION
Asset-backed securities issuers would face new reporting requirements, including loan-level data and compensation information on brokers, originators and sponsors. This information would be available to investors and credit-rating agencies throughout the life of a securitization.

Securitization originators, sponsors or brokers would have to keep at least 5 percent of the performance risk in them. Loan originators would be barred from transferring that risk.

Legal documentation for transactions would be more standardized to improve valuations. The SEC and the Financial Industry Regulatory Authority would expand the TRACE electronic trade reporting database now used for corporate bonds to include asset-backed securities.

Compensation of securitization brokers, originators, underwriters, sponsors and others would link to long-term performance and the interests of borrowers and investors.

Generally Accepted Accounting Principles would be changed to eliminate immediate recognition of "gain on sale" by originators in a securitization, requiring instead that originators reflect income over the life of the assets.

Fees and commissions received by loan brokers and loan officers would spread out over time and decline if a loan runs into trouble due to poor underwriting.

Sponsors of securitizations would have to stand behind securitized products sold to investors with warranties.

CREDIT RATING AGENCIES
Reliance by regulators on credit-rating agencies would be reduced by changing some federal legal requirements covering debt issuance that encourage the use of credit ratings.

CONSUMER, INVESTOR PROTECTION
An independent Consumer Financial Protection Agency would be formed, with the power to write and enforce rules for financial firms dealing with fair lending.

The agency would have the authority to require loan originators to retain 5 percent of credit risk. It would define standards for "plain vanilla" products such as mortgages with straightforward terms; restrict or ban prepayment penalties; and ensure that banks, nonbanks, and independent mortgage brokers follow the same rules.

It would also enforce the Community Reinvestment Act, which encourages banks to make loans in disadvantaged communities.