The New Laws and Regulations for Financial Conglomerates: Will They Better Manage the Risks than the Previous Ones?

Abstract

Federal and state laws allow U.S. financial conglomerates to own securities, insurance and depository institutions through a holding company structure. Before the recent crisis, the federal or state agency responsible for regulating a financial conglomerate as a whole was determined by what subsidiaries that the holding company owned. For example, the Office of Thrift Supervision supervised AIG, instead of the Federal Reserve because it owned a thrift, not a bank. This article discusses how the different financial conglomerate regulations contributed to the recent financial crisis and whether the reforms in the financial regulatory reform legislation in Congress corrects these problems.

Keywords: Financial Regulation, Financial Conglomerates, Holding Companies, Too Big Too Fail, Regulatory Reform, Dodd-Frank Act

JEL Classification: E44, G18, G21, G22, G24, G28, K22, K23, L22