Obama Plans Fast Action to Tighten Financial Rules

Obama Plans Fast Action to Tighten Financial Rules

Published: January 24, 2009

WASHINGTON — The Obama administration plans to move quickly to tighten the nation’s financial regulatory system.

Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.

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Some of these actions will require legislation, while others should be achievable through regulations adopted by several federal agencies.

Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade.

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Administration officials have begun to study ways to control executive compensation.

For example, they are preparing proposals to limit executive pay at companies that receive money under the bank bailout program. In response to written questions by Senator John Kerry, Democrat of Massachusetts, Mr. Geithner said that in such circumstances the administration was planning to set a limit and that any compensation over that amount would “be paid in restricted stock or similar form that cannot be liquidated or sold until government assistance has been repaid.”

“Excessive executive compensation that provides inappropriate incentives,” Mr. Geithner said, “has played a role in exacerbating the financial crisis.”