Financial Reforms, Obama style.

This is the sixteenth in a series of articles on the financial reforms sought to be initiated by the Obama Administration in U.S.A.

Eliminate SECs program for consolidated supervision:  Hitherto the SEC had been the holding company supervisor for companies like Lehman Brothers and Bear Stearns, under the Consolidated Supervised Entity Program.   This program has since ended.   Another program that is sought to be ended under the reforms package is the SECs Supervised Investment Bank Holding Company program.   Henceforth such Investment Banking firms would be subject to consolidated supervision and regulation under the Fed Reserve.

Some of the salient features of the reforms in this regard are as follows:

1. Under the Securities  Exchange Act 1934, the SEC may permit investment Bank holding companies to opt for consolidated supervision by the SEC.
2. The SEC put into place two supervision regimes for companies owning SEC registered securities broker or dealer-one for “consolidated” supervised entities(CSEs), and the other, for “Supervised investment Bank holding companies”(SIBHCs).
3. The major stand alone investment Banks as also several large commercial Banks were at liberty to opt for either of the above two systems.
4. The rationale for the stand alone investment Banks opting for one of the above systems was to present a picture of being under consolidated supervision of a federal regulator in U.S.A.
5. Though the two systems were similar  in most respects, the CSE was geared to cater to the largest securities firms.
6. Both the systems have common requirements with regard to the SEC examinations, reporting requirements, regulatory capital calculation, internal risk management systems, and record keeping.
7. In view of banking failures in the recent economic meltdown, the CSE system was given up and in case of the SIBHC, only one entity is currently subject to it.

The reforms package seeks to end the remaining consolidated supervision program for investment Bank holding companies, and subject investment banking firms to comprehensive supervision and regulation by the Fed Reserve.

                                                                                                                                                To be concluded.