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Financial Planning > Behavioral Finance

Financial overhaul bill is in the works

By Staff Writer

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House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., hopes to have a plan for federal oversight of the nation’s financial system by May. The goal is to create a systemic risk regulator to monitor “systemically significant” companies in an effort to make financial meltdowns less likely, according to the Associated Press.

Frank said at a hearing today that a plan is still in its initial stage. But the idea has left many wondering whether the Fed ought to oversee a consolidated regulatory system.

According to the Associated Press, White House spokesman Robert Gibbs said President Barack Obama wants both financial regulation reform and a new “resolution authority” to deal with giants such as American International Group Inc. that get into complex financial trouble. He said the authority would be used “to break apart, unwind and finally resolve the issues that we face with systemic risk.”

The idea of government supervision is not without criticism.

Peter J. Wallison, a fellow at the American Enterprise Institute, writes for today’s Wall Street Journal: “There are several serious problems with this plan, beginning with the fact that no one can define a systemic risk or its causes. The Congressional Oversight Panel, which was established to advise Congress on the use of the TARP funds, concluded — with two Republicans dissenting — that the current crisis is an example of a systemic risk evolving into a true systemic event. After all, virtually all the world’s major financial institutions are seriously weakened, and many have either failed or been rescued. If this is not an example of a systemic risk, what is?”

“This so-called systemic risk regulator should not have the power to commit or obligate billions or hundreds of billions of taxpayer dollars to bailing out the so-called ‘too-big-to-fail’ institutions,” says Rep. Spencer Bachus of Alabama, top Republican on the committee.

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