[Federal Register Volume 72, Number 200 (Wednesday, October 17, 2007)]
[Notices]
[Pages 58939-58941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-20433]


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DEPARTMENT OF THE TREASURY


Review by the Treasury Department of the Regulatory Structure 
Associated With Financial Institutions

AGENCY: Department of the Treasury, Departmental Offices.

ACTION: Notice; request for comments.

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SUMMARY: The Treasury Department is undertaking a broad review of the 
regulatory structure associated with financial institutions. To assist 
in this review and obtain a broad view of all perspectives, the 
Treasury Department is issuing this notice seeking public comment.

DATES: Comments should be submitted electronically and received by 
Wednesday, November 21, 2007.

ADDRESSES: Please submit comments electronically through the Federal 
eRulemaking Portal--``Regulations.gov.'' Go to http://www.regulations.gov, select ``Department of the Treasury--All'' from 
the agency drop-down menu, then click ``Submit.'' In the ``Docket ID'' 
column, select ``TREAS-DO-2007-0018'' to submit or view public comments 
and to view supporting and related materials for this notice. The 
``User Tips'' link at the top of the Regulations.gov home page provides 
information on using Regulations.gov, including instructions for 
submitting or viewing public comments, viewing other supporting and 
related materials, and viewing the docket after the close of the 
comment period.
    Please include your name, affiliation, address, e-mail address and 
telephone number(s) in your comment. Where appropriate, comments should 
include a short Executive Summary (no more than five single-spaced 
pages). All statements, including attachments and other supporting 
materials, received are part of the public record and subject to public 
disclosure. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: Jeffrey Stoltzfoos, Senior Advisor, 
Office of the Assistant Secretary for Financial Institutions, (202) 
622-2610 or Mario Ugoletti, Director, Office of Financial Institutions 
Policy, (202) 622-2730 (not toll free numbers).

SUPPLEMENTARY INFORMATION: The Treasury Department is currently engaged 
in a number of initiatives associated with maintaining the 
competitiveness of United States capital markets. One of those 
initiatives is evaluating the regulatory structure associated with 
financial institutions.
    The regulatory structure for financial institutions in the United 
States has served us well over the course of our history. Much of the 
basic regulatory structure associated with financial institutions was 
established decades ago. While there have been important changes over 
time in the way financial institutions have been regulated, the 
Treasury Department believes that it is important to continue to 
evaluate our regulatory structure and consider ways to improve 
efficiency, reduce overlap, strengthen consumer and investor 
protection, and ensure that financial institutions have the ability to 
adapt to evolving market dynamics, including the increasingly global 
nature of financial markets.

[[Page 58940]]

    The Treasury Department's review of regulatory structure will focus 
on all types of financial institutions: Commercial banks and other 
insured depository institutions; insurance companies; securities firms; 
futures firms; and other types of financial intermediaries.
    The Treasury Department is soliciting comments to assist in this 
review. The Treasury Department would be particularly interested in 
comments on the specific questions set forth below, or on other issues 
related to the regulatory structure associated with financial 
institutions. We are also interested in specific ideas or 
recommendations as to how we can improve our current regulatory 
structure.

I. General Issues

    1.1 What are the key problems or issues that need to be addressed 
by our review of the current regulatory structure for financial 
institutions?
    1.2 Over time, there has been an increasing convergence of products 
across the traditional ``functional'' regulatory lines of banking, 
insurance, securities, and futures. What do you view as the significant 
market developments over the past two decades (e.g. securitization, 
institutionalization, financial product innovation and globalization) 
and please describe what opportunities and/or pressures, if any, these 
developments have created in the regulation of financial institutions?
    1.2.1 Does the ``functional'' regulatory framework under which 
banking, securities, insurance, and futures are primarily regulated by 
respective functional regulators lead to inefficiencies in the 
provision of financial services?
    1.2.2 Does the ``functional'' regulatory framework pose 
difficulties for considering overall risk to the financial system? If 
so, to what extent have these difficulties been resolved through 
regulatory oversight at the holding company level?
    1.2.3 Many countries have moved towards creating a single financial 
market regulator (e.g., United Kingdom's Financial Services Authority; 
Japan's Financial Services Agency; and Germany's Federal Financial 
Supervisory Authority (BaFin)). Some countries (e.g., Australia and the 
Netherlands) have adopted a twin peaks model of regulation, separating 
prudential safety and soundness regulation and conduct-of-business 
regulation. What are the strengths and weaknesses of these structural 
approaches and their applicability in the United States? What ideas can 
be gleaned from these structures that would improve U.S. capital market 
competitiveness?
    1.3 What should be the key objectives of financial institution 
regulation? How could the framework for the regulation of financial 
institutions be more closely aligned with the objectives of regulation? 
Can our current regulatory framework be improved, especially in terms 
of imparting greater market discipline and providing a more cohesive 
look at overall financial system risk? If so, how can it be improved to 
achieve these goals? In regards to this set of questions, more 
specifically:
    1.3.1 How should the regulation of financial institutions with 
explicit government guarantees differ from financial institutions 
without explicit guarantees? Is the current system adequate in this 
regard?
    1.3.2 Is there a need for some type of market stability regulation 
for financial institutions without explicit Federal Government 
guarantees? If so, what would such regulation entail?
    1.3.3 Does the current system of regulating certain financial 
institutions at the holding company level allow for sufficient amounts 
of market discipline? Are there ways to improve holding company 
regulation to allow for enhanced market discipline?
    1.3.4 In recent years, debate has emerged about ``more efficient'' 
regulation and the possibility of adopting a ``principles-based'' 
approach to regulation, rather than a ``rules-based'' approach. Others 
suggest that a proper balance between the two is essential. What are 
the strengths, weaknesses and feasibility of such approaches, and could 
a more ``principles-based'' approach improve U.S. competitiveness?
    1.3.5 Would the U.S. financial regulatory structure benefit if 
there was a uniform set of basic principles of regulation that were 
agreed upon and adopted by each financial services regulator?
    1.4 Does the current regulatory structure adequately address 
consumer or investor protection issues? If not, how could we improve 
our current regulatory structure to address these issues?
    1.5 What role should the States have in the regulation of financial 
institutions? Is there a difference in the appropriate role of the 
States depending on financial system protection or consumer and 
investor protection aspects of regulation?
    1.6 Europe is putting in place a more integrated single financial 
market under its Financial Services Action Plan. Many Asian countries 
as well are developing their financial markets. Often, these countries 
or regions are doing so on the basis of widely adopted international 
regulatory standards. Global businesses often cite concerns about the 
costs associated with meeting diverse regulatory standards in the 
numerous countries in which they operate. To address these issues, some 
call for greater global regulatory convergence and others call for 
mutual recognition. To what extent should the design of regulatory 
initiatives in the United States be informed by the competitiveness of 
U.S. institutions and markets in the global marketplace? Would the U.S. 
economy and capital market competitiveness be better served by pursuing 
greater global regulatory convergence?

II. Specific Issues

2.1 Depository Institutions

    2.1.1 Are multiple charters for insured depository institutions the 
optimal way to achieve regulatory objectives? What are the strengths 
and weaknesses of having charters tied to specific activities or 
organizational structures? Are these distinctions as valid and 
important today as when these charters were granted?
    2.1.2 What are the strengths and weaknesses of the dual banking 
system?
    2.1.3 What is the optimal role for a deposit insurer in depository 
institution regulation and supervision? For example, should the insurer 
be the primary regulator for all insured depository institutions, 
should it have back-up regulatory authority, or should its functions be 
limited to the pricing of deposit insurance, or other functions?
    2.1.4 What role should the central bank have in bank regulation and 
supervision? Is central bank regulatory authority necessary for the 
development of monetary policy?
    2.1.5 Is the current framework for regulating bank or financial 
holding companies with depository institution subsidiaries appropriate? 
Are there other regulatory frameworks that could or should be 
considered to limit the transfer of the safety net associated with 
insured depository institutions?
    2.1.6 What are the key consumer protection elements associated with 
products offered by depository institutions? What is the best 
regulatory enforcement mechanism for these elements?

2.2 Insurance

    2.2.1 What are the costs and benefits of State-based regulation of 
the insurance industry?
    2.2.2 What are the key Federal interests for establishing a 
presence or

[[Page 58941]]

greater involvement in insurance regulation? What regulatory structure 
would best achieve these goals/interests?
    2.2.3 Should the States continue to have a role (or the sole role) 
in insurance regulation? Insurance regulation is already somewhat 
bifurcated between retail and wholesale companies (e.g., surplus lines 
carriers). Does the current structure work? How could that structure be 
improved?
    2.2.4 States have taken an active role in some aspects of the 
insurance marketplace (e.g., workers' compensation and residual markets 
for hard to place risks) for various policy reasons. Are these policy 
reasons still valid? Are these necessarily met through State (as 
opposed to federal) regulation?

2.3 Securities and Futures

    2.3.1 Is there a continued rationale for distinguishing between 
securities and futures products and their respective intermediaries?
    2.3.2 Is there a continued rationale for having separate regulators 
for these types of financial products and institutions?
    2.3.3 What type of regulation would be optimal for firms that 
provide financial services related to securities and futures products? 
Should this regulation be driven by the need to protect customers or by 
the broader issues of market integrity and financial system stability?
    2.3.4 What is the optimal role for the states in securities and 
futures regulation?
    2.3.5 What are the key consumer/investor protection elements 
associated with products offered by securities and futures firms? 
Should there be a regulatory distinction among retail, institutional, 
wholesale, commercial, and hedging customers?
    2.3.6 Would it be useful to apply some of the principles of the 
Commodity Futures Modernization Act of 2000 to the securities 
regulatory regime? Is a tiered system of regulation appropriate? Is it 
appropriate to make distinctions based on the relative sophistication 
of the market participants and/or the integrity of the market?

    Dated: October 11, 2007.
Taiya Smith,
Executive Secretary of the Treasury.
 [FR Doc. E7-20433 Filed 10-16-07; 8:45 am]
BILLING CODE 4811-42-P