Responding to the 2007- 09 financial crisis: A new Consumer Financial Protection Agency?

Tatom, John (2009): Responding to the 2007- 09 financial crisis: A new Consumer Financial Protection Agency?

Abstract

esident Obama has released a sweeping plan to respond to the financial crisis and to insure that it is not repeated by altering and expanding the federal regulatory framework for financial services firms. The plan outlines detailed and demanding reporting deadlines for various existing federal regulatory institutions to formulate plans for the changes and asks Congress for action on the plan by the end of this year. One of the main components of the plan is to create a new federal agency, the Consumer Financial Protection Agency (CFPA), to protect consumers and investors from deceptive or dangerous products. This is one of the four broad components of comprehensive regulatory reform proposed by the President and the one that has received the greatest endorsement from congressional leaders in terms of the urgency of action. Not surprisingly, the financial services industry has responded, arguing that a new regulator for consumer protection is not necessary and that it contradicts one of the principal goals of regulatory reform. This paper reviews the status quo, advantages and disadvantages of the proposed changes and the extent to which it addresses or does not address perceived issues arising from the financial crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial regulatory reform; Consumer Financial Protection Agency; financial crisis
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

References

Cassar, Gavin and Joseph Gerakos (2009), “”Determinants of Hedge Fund Internal Controls and Fees,” June 29. http://ssrn.com/abstract=1268456

Dimon, Jamie (2009), “A Unified Bank Regulator is a Good Start,” Wall Street Journal, June 27.

Federal Register (2008), “Truth in Lending: Final Rule,” / Vol. 73, No. 147 / Wednesday, July 30, 2008 / Rules and Regulations, 12 CFR part 226, pp 44522- 44611. http://edocket.access.gpo.gov/2008/pdf/E8-16500.pdf

Group of 20 (2009),”Global Plan for Recovery and Reform: Communiqué from the London Summit,” April. http://www.londonsummit.gov.uk/en/summit-aims/summit-communique/

Hoenig, Thomas M. (2009), “Capitalism and The Process of Renewal,” paper presented at the Bankruptcy and the Financial Crisis Conference, New York University, June 30. http://www.kc.frb.org/speechbio/hoenigpdf/capitalism.NYU.06.30.09.pdf

Krauss, Melvyn (2009), “Don’t Blame Hedge Funds,” New York Times, June 24, 2009.

Tennyson, Sharon (2008), “State Regulation and Consumer Protection in the Insurance Industry,” Networks Financial Institute Policy Brief 2008-PB-03.

U.S. Department of the Treasury (2009), Financial Regulatory Reform: A New Foundation, June 18. http://financialstability.gov/docs/regs/FinalReport_web.pdf.

U.S. Department of the Treasury (2008), Blueprint for a Modernized Financial Regulatory Structure, March 31. http://www.treas.gov/releases/reports/Blueprint.pdf.

Wallison, Peter J. “Unfree to Choose: The Administration’s Consumer Financial Protection Agency,” AEI Outlook Series, July 2009. www.aei.org/outlook/100056

Zywicki, Todd J. (2009), “Let’s Treat Borrowers Like Adults,” Wall Street Journal, July 8, 2009.