Bank stocks slip ahead of Obama regulation plan

The administration wants to close the gaps that led to last year's financial crash.

By Charley Blaine Jun 16, 2009 6:12PM

Bank stocks were generally lower today, ahead of a speech by President Barack Obama Wednesday that will offer details on how to shore up regulation of the nation's financial regulatory structure.

 

The S&P 500 financial sector exchange-traded fund -- technically the Select Sector SPDR-Financial (XLF) ETF -- fell 1.7% to $11.96. Bank of America (BAC) was down 4.5% to $12.73. JPMorgan Chase (JPM) dropped 1.5% to $33.50.

 

The administration wants to close the holes and gaps that led to last fall's financial crash, the worst financial crisis in the post-World War II period.

 

The proposal is expected to include a number of elements, including:

  • The Federal Reserve could regulate any large institutions whose failure could threaten the stability of the financial system. There was no such structure in place last year when Lehman Bros. failed and American International Group (AIG) avoided collapse only with massive amounts of government aid.
  • A council of regulators with broad coordinated responsibility across the financial system would be established.
  • Issuers of asset-backed securities would have new reporting requirements. That way, regulators and managements alike would have a better sense of how vulnerable the financial system might be.

The idea behind the proposal is to create a new way to seize and unwind troubled large firms that are not banks and avoid the haphazard approach to crises, such as last year's costly bailout of insurer American International Group.

 

There has been criticism that the U.S. patchwork of financial regulators enabled the risky behavior of the banks and other companies to go unnoticed.

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