THE US financial system is headed for a groundbreaking period of reform, after President Obama unveiled his vision of a regulatory regime designed to avert new financial crises.
Outlining a raft of measures he termed a “transformation on a scale not seen since the reforms that followed the Great Depression”, Obama blamed a “culture of irresponsibility” for the financial crisis.
In a bid to promote more intrusive oversight of financial institutions the Federal Reserve, chaired by Ben Bernanke, will take on responsibility for the regulation of firms that could pose a systemic risk to economic stability.
He also said lenders will be required to maintain higher capital cushions during good economic times, in preparation for unforeseen crises in the global economy.
A new Financial Services Oversight Council (FSOC), staffed by the heads of regulatory bodies, will play a role in singling out systematically important firms that should be regulated by the Fed. But the Office of Thrift Supervision – widely blamed for the near collapse of insurer AIG – and the Office of the Comptroller of the Currency will be axed, to be replaced by a single National Bank Supervisor.
Hedge funds will face greater scrutiny – including the requirement to register with the Securities and Exchange Commission (SEC) – while securities originators will be subject to compensation restrictions.
Obama also addressed fair lending, announcing a Consumer Financial Protection Agency (CFPA) to ensure that there is no repeat of the sub-prime lending blamed for triggering the credit crisis.
The US Chamber of Commerce gave elements of the plan a cautious welcome but said it merely made a complex system more layered, “without addressing the underlying and fundamental problems”. But Obama argued that opposition was driven by “special interests” and vowed that his reforms would see a return to “hard work and responsibility, not recklessness and greed”.