Reshaping financial oversight in line with the White House plan released Wednesday would likely create still more jobs within the Federal Reserve and its 12 district banks, and within a proposed new federal agency that would seek to protect consumers in their dealings with financial institutions.
The Securities and Exchange Commission might need more heads to implement proposed new authority over hedge funds and other private investment vehicles, while the SEC and CFTC would cooperate to oversee derivatives markets. Meanwhile, the Office of Thrift Supervision would merge with the Office of the Comptroller of the Currency to form a new agency known as the National Bank Supervisor, that would regulate federally chartered lenders.
In additition, the proposed regulatory overhaul could stimulate private-sector demand for compliance, credit risk, and compensation professionals. Stiffer capital and liquidity minimums and heightened oversight generally, should further boost financial institutions' compliance function - leading to stepped-up hiring in compliance departments, especially as the economy and business prospects improve.
Enlarging the Fed's Powers
The Fed, already the leading player in ongoing efforts to stabilize the U.S. financial system, would gain wider and more explicit powers under the White House plan. The central bank would become the primary regulator for any institution large or important enough to pose systemic risk - regardless of the institution's legal structure.
The Federal Reserve system has been hiring aggressively since the inception of the banking bailout late in 2008. Much of the hires have occurred within its 12 district banks, particularly the Federal Reserve Bank of New York which acts directly in various markets to implement policy decisions of the Fed's Washington-based Board of Governors.
"The Fed emerges from the plan with the power to oversee from top to bottom almost any financial company in the country, including the firms' foreign affiliates," observes The Wall Street Journal. "It would also hand the central bank another victory by allowing it to oversee any commercial company that owns a banking charter known as an industrial loan company." The Fed also would gain more authority over payments and settlements systems among financial institutions.
New Consumer Regulator
The proposed Consumer Financial Protection Agency could be a big source of jobs too. If approved by Congress, such a body presumably would need staff with experience in overseeing, designing, originating consumer products that include mortgages, credit cards and savings vehicles.
On the other side of the ledger, industry leaders fear that "a consumer agency could be overly restrictive, limiting access to loans and constraining financial innovation," says the Washington Post. If stiffer regulation crimps growth of consumer financial products, employment within banks' retail business segments would be affected as well.
Compensation Changes Remain Vague
On compensation, the 89-page white paper states that practices need to better reflect both sound risk management and shareholders' interests. Rather than go into detail, the Treasury Department blueprint sets forth general principles whose concrete expression will be left up to various regulators including the Fed, the SEC and federal bank regulators.
The administration did reiterate past calls for two specific legislative actions: requiring "say on pay," and having outside compensation consultants report directly to corporate compensation committees rather than only to company management.
The document's five general compensation reform principles overlap with similar principles issued through global bodies such as the Financial Stability Forum. The principles are:
- Compensation plans should properly measure and reward performance.
- Compensation should be structured to account for the time horizon of risks.
- Compensation practices should be aligned with sound risk management.
- Golden parachutes and supplemental retirement packages should be reexamined to determine whether they align the interests of executives and shareholders.
- Transparency and accountability should be promoted in the process of setting compensation.
The white paper states: "As part of this effort, Treasury will support federal regulators, including the Federal Reserve, the SEC, and the federal banking regulators in laying out standards on compensation for financial firms that will be fully integrated into the supervisory process."
It says the President's Working Group on Financial Markets and a successor body will be asked to review how compensation practices affect risk-taking, "with a focus on identifying whether new trends might be creating risks that would otherwise go unseen."