| In June 2009, the administration issued a proposal | | | | duties are split between four independent agencies |
| for financial reform to strengthen the financial | | | | this allowed for Banks to shop for the supervisor |
| markets. The Financial Regulatory Reform's | | | | of their choice; certain regulatory agencies have |
| objective is to protect American consumers from | | | | been known to be easier in the examination |
| abuse and predatory practices and will set clear | | | | process than others. The Financial Institution |
| rules for the financial industry. Ultimately, the goal | | | | Regulatory Administration will call for tougher |
| of the Financial Regulatory Reform is to prevent | | | | oversight of financial firms, including larger capital |
| another financial collapse and restore responsibility | | | | requirements, and new requirements for the large |
| and accountability in the financial system. The | | | | banks. It also proposes focusing on financial |
| current financial crisis has been blamed on the | | | | products that are more risky such as hedging |
| financial system failing to perform, imbalance of | | | | transactions. Increased capital requirements would |
| saving and consumption, highly leveraged | | | | require financial institutions and their parent |
| institutions, lack of oversight, and the | | | | companies to be well capitalized on a consolidated |
| misunderstanding of financial instruments; just to | | | | basis. The bill will also allow federal regulators to |
| name a few. Our present regulations focus on | | | | have the authority to set standards for executive |
| soundness of individual financial institutions but | | | | compensation practices. The large banks were |
| does not provide safety or soundness on the | | | | reviewed by regulators as stand alone |
| large financial institutions that are being blamed for | | | | examination; however, are condemned for not |
| the current recessionary period. The reform | | | | seeing the big picture that the large banks are |
| outlines the following five elements: oversight of | | | | interconnected. |
| financial firms, strengthening the regulation of core | | | | The Consumer Financial Protection Agency will |
| markets and infrastructure, strengthen consumer | | | | safeguard consumers against mortgage, credit |
| protection, ensure the government has the tools | | | | card and other predatory lending that lead to the |
| to effectively manage financial crises, and ensure | | | | financial meltdown. The agency will ensure |
| high standards, not just in the United States but | | | | consumers transparency in relation to loans and |
| globally. The Financial Regulatory Reform created | | | | other financial products, eliminate abusive lending, |
| three new government agencies: Agency for | | | | and from deceptive lending. Lenders would be |
| Financial Stability, Financial Institution Regulatory | | | | required to distribute simple and clear mortgage |
| Administration, and Consumer Financial Protection | | | | disclosures. Although distributing clearer mortgage |
| Agency to ensure the five elements are carried | | | | disclosures does not necessarily mean that they |
| out. | | | | will be read by the consumer. The agency would |
| The Agency for Financial Stability will oversee ad | | | | also require consumers be given a choice before |
| regulate systemic risk. Currently the Federal | | | | joining expensive overdraft programs. The goal of |
| Reserve is responsible for regulating systemic risk. | | | | the Consumer Financial Protection Agency is to |
| However, the Federal Reserve has been criticized | | | | ensure that consumers receive what they are |
| of not being professional, having conflicts of | | | | paying for. |
| interest, and being distracted. In my experience | | | | There are many advantages of the |
| the Federal Reserve employees that perform | | | | implementation of the Financial Regulatory |
| examinations of Financial Institutions have a check | | | | Reform; however, a few disadvantages exist also. |
| the box mentality of auditing. They concentrate | | | | Of course there will be short term disruptions of |
| on two or three items that are considered to be | | | | reorganization of the existing regulatory agencies. |
| hot accounting topics for all of the Financial | | | | In addition, the administration may not be able to |
| Institutions that they perform audits of and use | | | | exercise direct control as easily over the agency. |
| audit modules to determine whether there is an | | | | There also will be substantial initial costs of setting |
| audit issue. Although as an external auditor, I | | | | up the stand alone agency which will result in |
| question the validity of the examination reports | | | | larger assessment fees Banks. However, I believe |
| issued by the Federal Reserve. The Financial | | | | that the benefits of the Financial Regulatory |
| Institution Regulatory Administration may assist in | | | | Reform out way the disadvantages. Hopefully, the |
| providing more sound examinations. | | | | implementation of the Financial Regulatory Reform |
| The Financial Institution Regulatory Administration | | | | will provide a way to avoid financial crises and |
| proposes that a single U.S. bank regulator would | | | | strengthen investor confidence. The House passed |
| combine parts of the Federal Reserve, the | | | | the Financial Regulatory Reform bill on December |
| Federal Deposit Insurance Corp., the Office of the | | | | 12, 2009. The vote was party-line 223 to 202. |
| Comptroller of the Currency, and the Office of | | | | The Senate is anticipated to act on the bill in the |
| Thrift Supervision. Since regulatory supervisory | | | | spring of 2010. |