Financial Reform 

In June 2009, the Administration submitted a 

comprehensive financial reform proposal to 

Congress designed to help prevent future 

financial crises by filling gaps in the U.S. 

regulatory regime and redistributing 

responsibilities among regulators in order to 

better focus on key issues that contributed to 

the present crisis. 

The Administration’s proposal employs 

lessons learned from the present crisis to 

reform and repair financial regulation on a 

number of fronts: 

First, the proposal prevents future bailout 

scenarios for “Too Big to Fail” firms by 

creating a new Financial Services Oversight 

Council to monitor for threats to financial 

stability and by authorizing the Federal 

Reserve to regulate large, interconnected firms 

if their failure during a downturn would 

severely impact the functioning of financial 

markets. In addition, the Government would 

have the ability to unwind such firms in an 

orderly manner when they fail to protect the 

financial system. 

Second, the proposal closes the gaps in and 

strengthens regulation of consumer financial 

products in the bank and non-bank sectors by 

consolidating existing consumer protection 

authorities to better protect consumers from 

unscrupulous practices – authorities that are 

currently spread out over seven regulators. 

The proposal creates a single, new regulator, 

the Consumer Financial Protection Agency, 

whose sole mission is to look out for 

consumers in the increasingly complex 

financial marketplace. Consolidation of 

authorities in an agency with mission focus on 

consumer protection will create clear 

accountability for providing and consistently 

enforcing clear rules of the road for firms 

offering consumer financial services. 

Third, the proposal shines a light on dark 

pools of capital and derivatives markets, by 

expanding the authority of the Securities and 

Exchange Commission (SEC) and the 

Commodity Futures Trading Commission 

(CFTC), respectively, to register and regulate 

hedge funds and to require central clearing for 

over-the-counter derivatives. 

Fourth, the proposal creates a new Office of 

National Insurance within the Treasury 

Department to gather information, develop 

expertise, negotiate international agreements, 

and coordinate policy in the insurance sector. 

Better monitoring will help prevent the kind of 

intervention that AIG’s failure required to 

preserve financial stability. 

Fifth, to prevent depository institutions from 

selecting a corporate structure based on their 

preference for a particular regulator, the 

proposal consolidates the Office of the 

Comptroller of the Currency and the Office of 

Thrift Supervision into a single, unified 

National Bank Supervisor, applying the same 

standards of supervision to lending institutions 

that perform the same functions, regardless of 

how they choose to organize themselves. 

Finally, in an effort to further strengthen and 

provide consistent regulation while promoting 

growth and innovation in the marketplace, the 

Administration’s proposal includes numerous 

other reform measures. These measures 

include, but are not limited to, strengthening 

important payment, clearing, and settlement 

systems, enhancing credit rating agency 

regulation, and increasing investor protections. 

Department of the Treasury - Budget in Brief FY 2011 Page 149
Financial Stability
 

Monitoring
 

Non‐Bank
 Consumer Financial
 Securities and
 Bank Supervision Resolution Authority
 Protection Functions
 Derivatives Regulation
 

No

existing

regulator

No

existing

regulator

tem sSyt Curren em tsSyed osProp

National

Bank

Supervisor

Consumer

Financial

Protection

Agency

Financial

Services

Oversight

Council

The House of Representatives passed a 

comprehensive financial reform package in 

December 2009, and the Senate is expected to 

consider legislation in 2010. Because 

Congress has not yet completed its work on 

these historic and urgent reforms, the 

President’s Budget reflects the 

Administration’s proposal. Specifically, some 

of the functions performed by staff for the 

Financial Services Oversight Council and the 

Office of National Insurance are authorized 

under current authorities, and the costs are 

reflected directly in the Budget. In other areas 

where specific new resources are not needed, 

such as in the case of the Federal Reserve’s 

actions on executive compensation, mortgage 

lending, and credit card regulation, administrative reform is underway but not 

specifically reflected in the Budget. The 

remaining reforms, which are subject to 

enactment of a financial reform bill, are 

currently included as a single amount in the 

Budget Appendix, reflecting the net impact of 

proposed efficiency savings, transfers, and 

new spending. The amounts include a 

budgetary placeholder for new spending and 

receipts from the non-bank resolution 

authority. Specific programmatic impacts on 

SEC and CFTC are discussed in each 

regulator’s Appendix narrative. 

The chart below illustrates the Administration’s proposed changes to the U.S. 

financial regulatory structure. 

Proposed Federal Financial Reforms
 

Department of the Treasury - Budget in Brief FY 2011 Page 150
In the areas of financial stability oversight 

and the resolution of non-banks, the 

Administration has proposed new authorities 

that do not exist under the current regulatory 

structure. In consumer financial protection 

and bank supervision, portions of the current 

authorities of multiple regulators are 

consolidated into fewer or a single regulator, 

in order to better focus Federal oversight in 

those areas. For securities and derivatives 

regulation, existing authorities have been 

enhanced. The overall result is a 

comprehensive system that addresses 

identified gaps in the system of U.S. 

financial regulation. 

Department of the Treasury - Budget in Brief FY 2011 Page 151
Department of the Treasury - Budget in Brief FY 2011 Page 152