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We propose an evolution in the Federal Reserve’s current supervisory
authority for BHCs to create a single point of accountability for the
consolidated supervision of all companies that own a bank. All large,
interconnected firms whose failure could threaten the stability of the
system should be subject to consolidated supervision by the Federal
Reserve, regardless of whether they own an insured depository
institution. These firms should not be able to escape oversight of
their risky activities by manipulating their legal structure.Under our
proposals, the largest, most interconnected, and highly leveraged
institutions would face stricter prudential regulation than other
regulated firms, including higher capital requirements and more robust
consolidated supervision.

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When financial services markets begin to grow again, it is critical
that funding at the federal and state levels be adequate to meet the
challenge.

Empirical evidence is critical to a well designed regulatory
structure. The CFPA should have authority to collect information
through the supervisory process as well as through specific data
collection statutes, such as the Home Mortgage Disclosure Act. The CFPA
should use this information to improve regulations, promote compliance,
and encourage community development. The CFPA should also establish a
robust research and statistics department to conduct and promote
research across the full range of consumer protection, fair lending,
and community development finance issues. The Federal Trade Commission
(FTC) plays a critical role in protecting consumers across the full
range of products and services. While the FTC’s primary authority for
financial product and services protections should be transferred to the
CFPA, the FTC should retain backup authority with the CFPA for the
statutes for which the FTC currently has jurisdiction. We propose that
the FTC should retain authority for dealing with fraud in the financial
marketplace, including the sale of services like advance fee loans,
credit repair, debt negotiation, and foreclosure rescue/loan
modification fraud, but also provide such authority to the CFPA.

In cash-basis accounting, companies record expenses in financial
accounts when the cash is actually laid out, and they book revenue when
they actually hold the cash in their hot little hands or, more likely,
in a bank account. For example, if a painter completed a project on
December 30, 2003, but doesn't get paid for it until the owner inspects
it on January 10, 2004, the painter reports those cash earnings on her
2004 tax report. In cash-basis accounting, cash earnings include
checks, credit-card receipts, or any other form of revenue from
customers.

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Most critically in the run-up to the financial crisis, mortgage
companies and other firms outside of the purview of bank regulation
exploited that lack of clear accountability by selling mortgages and
other products that were overly complicated and unsuited to borrowers’
financial situation. Banks and thrifts followed suit, with disastrous
results for consumers and the financial system.This year, Congress, the
Administration, and financial regulators have taken significant
measures to address some of the most obvious inadequacies in our
consumer protection framework. But these steps have focused on just
two, albeit very important, product markets – credit cards and
mortgages. We need comprehensive reform. For that reason, we propose
the creation of a single regulatory agency, a Consumer Financial
Protection Agency (CFPA), with the authority and accountability to make
sure that consumer protection regulations are written fairly and
enforced vigorously. The CFPA should reduce gaps in federal supervision
and enforcement; improve coordination with the states; set higher
standards for financial intermediaries; and promote consistent
regulation of similar products.Consumer protection is a critical
foundation for our financial system. It gives the public confidence
that financial markets are fair and enables policy makers and
regulators to maintain stability in regulation. Stable regulation, in
turn, promotes growth, efficiency, and innovation over the long term.
We propose legislative, regulatory, and administrative reforms to
promote transparency, simplicity, fairness, accountability, and access
in the market for consumer financial products and services.

The federal government’s responses to the impending bankruptcy
of Bear Stearns, Lehman Brothers, and AIG were complicated by the lack
of a statutory framework for avoiding the disorderly failure of nonbank
financial firms, including affiliates of banks or other insured
depository institutions. In the absence of such a framework, the
government’s only avenue to avoid the disorderly failures of Bear
Stearns and AIG was the use of the Federal Reserve’s lending authority.
And this mechanism was insufficient to prevent the bankruptcy of Lehman
Brothers, an event which served to demonstrate how disruptive the
disorderly failure of a nonbank financial firm can be to the financial
system and the economy. For these reasons, we propose the creation of a
resolution regime to allow for the orderly resolution of failing BHCs,
including Tier 1 FHCs, in situations where the stability of the
financial system is at risk.This resolution regime should not replace
bankruptcy procedures in the normal course of business.

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