U.S. Financial Regulation - Global Effects - Part 1

What is Financial Regulation ?

Financial regulations are a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization.

Roles and Goals of Regulation:

1. To enforce applicable laws
2. To prosecute cases of market misconduct, such as insider trading
3. To license providers of financial services
4. To protect clients, and investigate complaints
5. To maintain confidence in the financial system

Source: Wikipedia

Obama's Financial Regulatory Reform:
Obama has proposed a Financial Regulatory Reform which address five key objectives;

1. Promote robust supervision and regulation of financial firms.
   
   
   • Financial institutions which are critical in keeping the market stable should be subject to strong supervision and regulations.
   • New powers are given to the Federal Reserve to supervise all the firms that could pose a threat to financial stability, including those which are not banks.
   • To improve inter-agency cooperation and to identify financial risks, a new council will be formed, called Financial Services Oversight Council.
2. Establish comprehensive supervision of financial markets.


• Additional power to Federal Reserve to oversee payment, clearance and settlement systems of financial systems
• Comprehensive regulation of all over-the-counter derivatives by the Federal Reserve (A type of financial derivative that has its transaction directly negotiated between two parties rather than through an exchange. Some financial derivatives, such as a swap, a forward rate agreement or an exotic option, are usually done over the counter.)
• New requirements for market transparencies, stronger regulation of credit rating agencies.
  
3. Protect consumers and investors from financial abuse.


• A Consumer Financial Protection Agency will be established to protect consumers across the financial sector from unfair, deceptive and abusive practices.
• Improving the standards of the providers of consumer financial products and services, whether they are a part of a bank or otherwise.
  
4. Provide the government with the tools it needs to manage financial crises.


• Issues of non-bank financial institutions, whose failure could have serious impacts on the market, to be resolved by an overseeing authority (Federal Reserve)
• Revisions to the Federal Reserve's emergency lending authority to improve accountability.
  
5. Raise international regulatory standards and improve international cooperation.


• International reforms to strengthen the capital framework; improving oversight of global financial markets; coordinating supervision of internationally active firms; and enhancing crisis management tools.
  

As one can notice in the above propositions, that more power has been vested in The Federal Reserve to monitor, control and supervise financial and non-bank institutions.

What will be pros and cons of such a reform and how will such a reform have global impact?

What are the macro effects on the Gulf and how will an individual global citizen affected by such a reform?

To more on the above questions, stay tuned to watch more updates.