The man doesn’t think small. If President Barack Obama’s proposed overhaul of the financial regulatory system gets through Congress, it will be a virtual reboot of some of the most engrained government agencies. The plan would rearrange the duties of Federal Reserve, the Treausury Dept., and many other Washington fiefdoms. It would extend federal oversight to hedge funds and a whole new basket of financial products, and change the way Americans use mortgages and credit cards. Here’s who some of the biggest winners will be if the plan goes into effect:
Tim Geithner. The Treasury Secretary is already Obama’s point man on the bank bailout and economic recovery effort, and the big man on campus is about to get bigger. The Treasury Secretary would chair the new Financial Services Oversight Council, an agency similar to the National Security Council whose role would be to knock heads and achieve harmony among all the agencies overseeing some part of the financial system. The head of the FSOC would also be a kind of inverse kingmaker, helping identify which firms should be on the government’s new superregulated “too-big-to-fail” list. Treasury would also get two powerful new agencies: the Office of National Insurance and the National Bank Supervisor. And the Federal Reserve would have to get a sign-off from the Treasury Secretary before doing any emergency lending, like it did with AIG, on its own initiative, last fall. Go Tim, go.
Ben Bernanke. The Federal Reserve chairman would have a bit less autonomy when it comes to emergencies, but the Fed would have broad new powers to step in and take control of big firms that are failing. The FDIC already has that kind of authority over traditional banks, but no agency is in charge of other types of failing firms that could threaten the whole financial system—a major handicap during the collapse of Lehman Brothers and AIG last September.
Consumers. Also known as voters, and thus recipients of lavish government indulgence. A new federal watchdog, the Consumer Financial Protection Agency, would protect consumers from ... their own greed and foolishness, as well as the many unscrupulous firms eager to take advantage of it. The CFPA would be similar to the Food and Drug Administration, overseeing a long list of products and practices involving bank accounts, credit-cards, and mortgages. The agency could require simplified explanations of the rules for mortgages and credit cards. It might require lenders to offer online calculators allowing their customers to compare a variety of loan types and payment plans. There could be new rules requiring merchants to warn you of an overdraft if you pay with a debit card that draws your balance below zero. Some fees could be banned altogether. Expect the banking lobby to fight hard against the CFPA.
Tri-state residents. Anybody who does their banking in more than one state has probably bumped into archaic rules that make interstate banking more complicated than necessary. An account opened in one state, for instance, can be hard to access in another. The Obama reforms would scrap those “interstate branching” laws, making banking a seamless experience no matter where you do it. Hooray.
Gary Gensler. He’s chairman of the Commodity Futures Trading Commission, which would gain responsibility for regulating derivatives, like credit-default swaps and collateralized debt obligations, that have been lightly regulated up till now. Expect more arcane Congressional hearings in which few of the questioners know what the heck the chairman is talking about.
Whistleblowers. The Securities and Exchange Commission already has a fund for paying rewards to people who report significant insider-trading abuses. The Obama plan would extend such payouts to people who blow the whistle on other kinds of financial or corporate crimes.
[See how the TARP paybacks expose the weakest banks.]
Clever financiers. Hedge funds and other private investing pools, currently unfettered by federal oversight, would be subject to regulation under the new plan. The hedgehogs will whine, since the feds might rein in their legendary freedom to invest as creatively—or aggressively—as they see fit. But the smartest moneymakers will quietly find the seams in the new regulated environment, and profit accordingly. They always do.
Securities lawyers. The Sarbanes-Oxley reforms that followed the Enron debacle earlier this decade produced marginal investor protections—but generated tons of work for lawyers advising firms how to comply with the new requirements. With even more new rules, new agencies, and an aggressive new focus on Wall Street, the Obama reforms could be an even bigger windfall for lawyers. Maybe he’ll regulate them next.