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The white paper, released Tuesday evening in advance of a formal announcement of the regulatory overhaul by President Obama and Treasury Secretary Timothy Geithner on Wednesday, describes greatly expanded powers for the Federal Reserve to supervise all financial firms that could pose a threat to financial stability, even those that do not own banks. The plan would also create a new Consumer Financial Protection Agency to protect consumers from unfair, deceptive and abusive financial practices. It would also close the Office of Thrift Supervision, and place its powers with the other regulators.
"It is an indisputable fact that one of the most significant contributors to our economic downturn was an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess," said Obama. "A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis - the Great Depression - was overwhelmed by the speed, scope and sophistication of a 21st century global economy."
The white paper released by the administration discusses several accounting-specific areas, building on recommendations issued at a recent summit of the Group of 20 world leaders. The white paper recommends that the accounting standard-setters, the Financial Accounting Standards Board and the International Accounting Standards Board, clarify and make consistent the application of fair value accounting standards, including the impairment of financial instruments, by the end of 2009.
The administration also comes out in favor of convergence, recommending that the accounting standard-setters make substantial progress by the end of 2009 toward development of a single set of high-quality global accounting standards. The white paper acknowledges that FASB and the IASB have engaged in extensive efforts to converge International Financial Reporting Standards with U.S. GAAP, but the authors stop short of endorsing the proposed roadmap for adopting IFRS now under consideration by the SEC.
Last year, the IASB and FASB reiterated their objective of achieving broad convergence of IFRS and U.S. GAAP by the end of 2010, which is a necessary precondition under the SECs proposed roadmap to adopt IFRS, said the white paper. Currently, the SEC is considering comments submitted on its proposed roadmap that sets forth several milestones that could lead to the eventual use of IFRS by all U.S. issuers.
The white paper also recommends that the accounting standard-setters improve accounting standards by the end of the year for loan loss provisioning that would make it more forward-looking, as long as the transparency of financial statements is not compromised.
The paper notes that in an April 2009 report addressing pro-cyclicality in the financial system, the Financial Stability Board, an international group of financial regulators, determined that earlier recognition of loan losses by financial firms could have reduced the pro-cyclical effect of write-downs in the current financial crisis.
