Obama urges biggest financial reforms

The proposals are headed for debate in Congress and include closing one bank regulator and creating government watchdogs for big-picture economic risk and financial product safety.

The administration takes on tough jobs, such as forcing large firms to boost their capital cushions and regulating over-the-counter derivatives and securitised instruments.
“...We seek to put in place rules that will allow our markets to promote innovation while discouraging abuse,” Obama said in a White House speech.

“We seek to create a framework in which markets can function freely and fairly, without the fragility which in normal business cycles bring the risk of financial collapse, a system that works for businesses and consumers,” he said.

Empowering Fed

Obama called for putting the Federal Reserve in charge of monitoring the “systemic risk” to the economy posed by the largest financial firms, to prevent a repeat of the banking and capital markets crisis of the past year.

The president also appealed for the creation of an agency that would seek to protect consumers of financial products, ranging from home loans to credit cards.

The Senate and the House of Representatives committees will hold hearings on the regulatory reform between now and mid-July, and conservative House Republicans have already offered a rival plan. Obama defended the plan as a balanced approach that restrains excessive risk, but does not clamp down so hard that firms would be prevented from helping drive economic growth.

The Obama plan calls for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision. A council of regulators to be chaired by the US Treasury secretary would work with the Federal Reserve, which would monitor the risks that could threaten the entire financial system.

The goal is to make sure a failure of one company—like the bailed-out mega-insurer American International Group—does not destabilise the broader economy.