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US unveils banking reform plans US unveils banking reform plans
(28 minutes later)
The US government has announced a major reform of banking regulation to prevent future financial crises.The US government has announced a major reform of banking regulation to prevent future financial crises.
The overhaul of the banking system will require big banks to put more money aside against future losses and is meant to curb excessive risk taking.The overhaul of the banking system will require big banks to put more money aside against future losses and is meant to curb excessive risk taking.
Consumers will get a special agency to protect their interests and regulate mortgages and credit cards.Consumers will get a special agency to protect their interests and regulate mortgages and credit cards.
The US central bank, the Federal Reserve, will be given the authority to monitor major financial institutions.The US central bank, the Federal Reserve, will be given the authority to monitor major financial institutions.
President Obama is set to speak later on Wednesday regarding the reforms, which mark the biggest shake-up of the US system of financial regulation since the 1930s. President Obama was speaking on Wednesday regarding the reforms, which mark the biggest shake-up of the US system of financial regulation since the 1930s.
KEY US BANKING REFORMS Tougher capital requirements for big banksRegulation of securitised assetsConsumer mortgage protectionPowers to take over failing banksGlobal regulatory standards Analysis: The obstacles to reform KEY US BANKING REFORMS Tougher capital requirements for big banksRegulation of financial marketsBetter consumer and investor protectionPowers to take over failing banksGlobal regulatory standards and more cooperation Analysis: The obstacles to reform class="" href="/2/hi/business/8104340.stm">Banking regulation 'not to blame'
The aim is to deal with the weaknesses that the sub-prime crisis and the financial meltdown revealed in the fragmented US regulatory system.The aim is to deal with the weaknesses that the sub-prime crisis and the financial meltdown revealed in the fragmented US regulatory system.
Issues include dealing with systemic risks that could bring down the whole financial system, raising capital requirements for banks, ensuring that the government can take over failing institutions, and protecting consumers and investors.Issues include dealing with systemic risks that could bring down the whole financial system, raising capital requirements for banks, ensuring that the government can take over failing institutions, and protecting consumers and investors.
A new Consumer Financial Protection Agency will be created and the Federal Trade Commission will gain new powers to protect consumers, as well as more powers for the Securities and Exchange Commission, for the benefit of investors.
There will be more regulation of hedge funds, securitised debts and over-the-counter derivatives, all of which have been blamed for exacerbating the financial crisis.There will be more regulation of hedge funds, securitised debts and over-the-counter derivatives, all of which have been blamed for exacerbating the financial crisis.
It will also aim to give shareholders more power to question executive bonuses.It will also aim to give shareholders more power to question executive bonuses.
The reforms will also fullfil the commitments made by the US at the G20 summit in London to join in the worldwide effort to toughen financial regulation. The reforms will also fulfil the commitments made by the US at the G20 summit in London to join in the worldwide effort to toughen financial regulation.
New institutionsNew institutions
Bear Stearns' problems caused shockwaves in global financial marketsBear Stearns' problems caused shockwaves in global financial markets
The reforms will enhance the power of the Federal Reserve to supervise and ultimately order the takeover of any financial institution in trouble.The reforms will enhance the power of the Federal Reserve to supervise and ultimately order the takeover of any financial institution in trouble.
It was the inability of the US government to take over Lehman Brothers that threw the financial markets into turmoil in September last year.It was the inability of the US government to take over Lehman Brothers that threw the financial markets into turmoil in September last year.
However, the Obama administration has backed away from earlier plans to create a single regulator, with the Fed sharing responsibility with the Federal Deposit Insurance Corporation, which regulates smaller community banks, and the Treasury. A new council of regulators, the Financial Services Oversight Council is to be created to co-ordinate the supervision of the banking system.
But one regulator, the Office of Thrift Supervision, will be abolished. Meanwhile, one banking regulator - the Office of Thrift Supervision - will be abolished.
Instead, there will be a new council of regulators, the Financial Services Oversight Council, which will co-ordinate the supervision of the banking system. And the Fed will lose some of its powers to regulate mortgages to the new Consumer Financial Protection Agency.
And the Fed will lose some of its powers to a new Consumer Financial Protection Agency which will regulate mortgages, credit cards, and savings products.
Fight in CongressFight in Congress
The proposals for regulatory reform could face significant opposition in Congress.The proposals for regulatory reform could face significant opposition in Congress.
Mr Obama has said he expected Congress to "work swiftly to get these laws into place", but warned that his plans would be a "heavy lift" because they faced opposition from "special interests".Mr Obama has said he expected Congress to "work swiftly to get these laws into place", but warned that his plans would be a "heavy lift" because they faced opposition from "special interests".
The US Chambers of Commerce, a business lobbying group, has already said it opposes key parts of the reform. While the rules were greeted positively not everyone agreed about how easy they will be to implement.
And many Democrats are sceptical of giving more powers to the Fed, whose unelected chairman, Ben Bernanke, is a Republican appointed by President Bush. "With their proposals today, the Administration has moved this critical debate from broad discussion to specific action - this is an important step forward," said Timothy Ryan, chief executive of the Securities Industry and Financial Markets Association.
The influential chairman of the Senate Banking Committee, Christopher Dodd, has favoured the creation of a new consolidated bank regulator to replace the Fed and other agencies. He said it was a "once-in-a-generation opportunity to rebuild our regulatory structure so that our financial system is more stable, more resilient and better underpins a dynamic US economy."
Ethan Siegel, of the Washington Exchange, which assesses laws for institutional investors said: "I think that the Obama Administration has put on the table a politically smart, pragmatic and reasonable package, especially given the territorial politics of Capitol Hill."
But he added: "I'm very skeptical that they can get any significant reform through the Congress this year".