Regulatory responses to the subprime crisis

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Regulatory responses to the subprime crisis addresses various actions taken by governments around the world to address the effects of the subprime mortgage crisis.

Regulators and legislators are considering action regarding lending practices, bankruptcy protection, tax policies, affordable housing, credit counseling, education, and the licensing . Regulations or guidelines can also influence the nature, transparency and regulatory reporting required for the complex legal entities and securities involved in these transactions. Congress also is conducting hearings to help identify solutions and apply pressure to the various parties involved.^[1]

U.S. 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.^[2][3][4]

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 (FDIC) 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 first to the firm's investors and including the creation of a 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.^[5]

The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama in July 2010, addressing each of these topics to varying degrees. Among other things, it created the Consumer Financial Protection Bureau.