Obama’s new rules to protect consumers from bears
President Obama has announced the most sweeping reorganization of financial-market supervision since the 1930s … touching almost every c
President Obama has announced the most sweeping reorganization of financial-market supervision since the 1930s … touching almost every corner of banking from misleading or dangerous mortgages to credit cards and exotic financial products.
Among his main proposals, the creation of a new Super Regulator to oversee the industry in future.
The aim is to stop a financial crisis, like the one we’re now living though, from ever happening again.
At the centre of the plan which administration officials refer to as a “white paper” are new powers for the central bank the Federal Reserve to oversee the biggest financial players. Firms whose collapse would rock the whole economy as Lehman Brothers did.
There are new rules for the authorities to unwind and break up systemically important companies — as the FDIC agency already does with failed banks.
A new “council of regulators” with broad co-ordinated responsibility is to be created to make sure consumers’ investments are safer in the future.
Firms must also have more cash for a rainy day to stop them getting in trouble so easily.
Here’s how White House officials put it during a briefing to journalists late on Tuesday night.
President Obama has 5 key points in his financial regulation revamp plan.
Commenting on the new rules Mohanned Aama of Beam Capital Management whose office is on Wall Street said:
“I think the general thinking is correct … focusing on the largest super financial firms, if you will, whose failure basically has this negative effects all over the economy but should we just get out the regulatory gun so to speak and aim at everybody I don’t think so.”
Obama’s proposals come at a time when bank and financial company shares generally have been sharply up. Ten of the biggest names have begun repaying the original bailout forced upon then at the height of the crisis known as TARP …
But with bank lending still frozen, many wonder about the renewed optimism, and whether enough has changed in bank board rooms to justify it. Mohanned says:
“The question is have we seen all the dirty laundry .. did they come out clean with everything that’s bad with them.”
Economist Viral Acharya of the Stern School of Business in lower Manhattan told me he thinks its crucial to maintain the momentum in favour of regulation will the crisis is still being played out as once recovery comes the drive for greater oversight could be sapped.
“If we don’t get some of the key mechanisms in place before we come out of the crisis. The political will the regulatory bargaining power sort of wanes through and the banking sector gets a little more bargaining power as things start to get good.”
And that’s the concern… that if the plans end up being more about appearance than actual reform… it could foster conditions for a future financial crisis.
The administration must now sell its plans to Congress. Treasury Secretary Tim Geithner will be on Capitol Hill to do so as early as Thursday.
The Obama administration says it hopes to get legislation changes through the Congress by the end of the year.
The White House says no detailed cost estimate has been done yet.
- John Terrett, New York