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Abstracts

creates a Consumer Protection Agency and a Financial Stability Council; provides for for the dismantling large, failing financial institutions, and introduces new regulations for the regulation for mortgages, credit rating agencies, hedge funds and private equity companies and trading in derivatives.

Proposals for reform

Overview

As instructed by the London Summit, the Financial Stability Board issued a framework for strengthening adherence to international financial standards.

G20 summit proposals

The explanatory note on the subject following the London Summit included the following diagnosis:

While market participants were unable to understand the nature of the risks they were exposed to, the regulatory system allowed them to increase leverage dramatically in the run up to the crisis. The tendency of the financial sector to over-expand during up swings was exacerbated by a number of factors: over reliance on Credit Ratings Agencies (CRAs) assessments of the credit risk and potential CRA conflicts of interest, inadequate accounting standards and capital requirements that served to reinforce rather than dampen financial market over expansion, and remuneration policies that encouraged excessive leveraging and risk-taking.

The Volcker Rule

At a press conference on January 21st 2010, President Obama announced that

"Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people. In addition, as part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today's economy.".