Subprime Mortgage Crisis - Regulatory Proposals and Long-term Solutions

Regulatory Proposals and Long-term Solutions

Further information: Subprime mortgage crisis solutions debate and Regulatory responses to the subprime crisis

President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions, among others. The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010 to address some of the causes of the crisis.

U.S. Treasury Secretary Timothy Geithner testified before Congress on October 29, 2009. His testimony included five elements he stated as critical to effective reform:

1. Expand the Federal Deposit Insurance Corporation bank resolution mechanism to include non-bank financial institutions;
2. Ensure that a firm is allowed to fail in an orderly way and not be "rescued";
3. Ensure taxpayers are not on the hook for any losses, by applying losses to the firm's investors and creating a monetary pool funded by the largest financial institutions;
4. Apply appropriate checks and balances to the FDIC and Federal Reserve in this resolution process;
5. Require stronger capital and liquidity positions for financial firms and related regulatory authority.