Five Things to Know About the Financial Regulatory Overhaul Plan

More Power for the Fed | The Federal Reserve will have greater power to oversee financial institutions, both large and small, including the foreign affiliates of U.S. firms. In addition, the Fed will have new authority to strongly regulate firms it deems large enough to threaten the stability of the economy, including requiring them to keep more assets on hand to hedge against risk. However, the power to write rules and police compliance governing mortgages, credit cards and other financial products, formerly the domain of the Fed and other agencies, will be given to a newly created consumer-protection agency.

Government Power for Takeovers | The Obama administration wants Congress to approve powers to allow the federal government, under extraordinary circumstances, to seize and dismantle large financial institutions if they fall into trouble and threaten the stability of the financial system. Under the proposed guidelines, if a firm is in danger of default, its failure would have "serious adverse effects on the economy," and the government's actions would avoid or mitigate those effects, the Treasury would have the authority to place it under conservatorship or receivership similar to bankruptcy, provide loans or purchase assets, or make other decisions about the control and operations to avoid the firm's chaotic collapse. Under the proposal, Treasury can invoke this authority only after consulting with the president and upon the written recommendation of two‐thirds of the members of the Federal Reserve Board, and the FDIC or SEC as appropriate.

New Rules for Financial Markets | Tighter rules will be imposed on banks that package and sell mortgage-backed securities. Companies that issue mortgages will be required to hold at least 5 percent of them in order to prevent the marketing of bad or inappropriate loans. Seeking to further regulate corners of the financial system that are out of its reach, the government will require hedge funds and private equity funds to register and report to Securities and Exchange Commission regulators. There will also be new rules imposed on conflict of interest pertaining to credit ratings agencies such as Moody's and Standard and Poor's.

New Oversight Agencies | In addition to a newly created Consumer Financial Protection Agency, charged with untangling and overseeing the complex assortment of available loans and mandating that affordable, straightforward financial products are more available in low-income communities, the overhaul would create an office of National Bank Supervisor to oversee federally chartered banks. (The FDIC will retain oversight over state-chartered banks.) The new rules will also establish a Financial Services Oversight Council consisting of the heads of Treasury, the SEC, Commodity Futures Trading Commission, the Federal Housing Finance Agency and the agencies that regulate banks. The council would recommend which large, globally interconnected firms are too big to fail and should be subject to more oversight.

More Global Coordination | The government proposes to lead the charge toward improving regulation and supervision of financial firms worldwide in recognition of the fact that the global economy is increasingly interconnected in both its strengths and weaknesses. Steps include promoting standardization for oversight of credit derivatives and improving coordination for crisis management when global firms are at risk.

---- Compiled by Carolyn O'Hara, Online NewsHour