Regulatory Reform Details Begin to Emerge

Details of the Obama administration's plan for regulatory reform are beginning to trickle out and it appears as though the devil for financial institutions is truly in the details.  Here is what the Associated Press reported yesterday.

Under the administration's proposal, companies such as Citi, Goldman Sachs and others in a broad top tier engaged in complex transactions would face stricter scrutiny and have to hold more assets and more cash as cushions against a downturn. They also would have to anticipate their own demise, drafting detailed descriptions of how they could be dismantled quickly without causing damaging repercussions. Think of it as planning their own funerals — and burials.

Obama's plan, in short, aims to make it far less appealing to be so big. That was the middle ground the administration sought, a step short of an outright ban on systemically risky companies. "Without banning them we're providing some pretty heavy penalties for entering" the top group of institutions that could pose a risk to the entire financial system, said Diana Farrell, deputy director of the White House's National Economic Council. "The regulator might say to a large institution, 'Make sure there is very good reason to allow yourself to get that big, or that interconnected, or that complex because the penalties will wipe out any advantages, such as lower cost of capital, you might have.'"

Large financial institutions in the U.S. will face many regulatory challenges and should be preparing their companies for the imminent changes to come.  Many of these companies' strategic plans will be impacted by the new rules and the risks they carry.