Obama’s Banking reform plans

Obama's New Financial Proposal

President obama has announced banking reforms to prevent possible future financial crisis.

The overhaul will require big banks to put more money aside against future losses to curb excessive risk taking.

Consumers will get a special agency to protect their interests and regulate mortgages and credit cards.

In outlining the reforms, President Barack Obama described them as the biggest shake-up of the US system of financial regulation since the 1930s.

The US President said the lack of oversight among finance firms prompted systemic abuse causing risks for both companies and individuals.

"We are working hard to build a new foundation for sustained economic growth. This will not be easy" he said.

"We know that this recession is not a result of one failure but of many. And many of the toughest challenges we face are the product of a cascade of mistakes and missed opportunities which took place over a course of decades."

The aim is to deal with the weaknesses that the sub-prime crisis and the financial meltdown revealed in the fragmented US regulatory system.

"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.

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".

But not everyone was so positive.

Peter Morici of the Smith School of Business at the University of Maryland described the changes as "a huge bureaucratic overreach that will prove ineffective and too costly".

Consumer protection

In talking about the causes of the financial crisis Mr Obama said complex financial instruments were meant to spread risk but instead concentrated it.

"It was easy money," he said. "But these schemes were built on a pile of sand."

The changes are aimed at dealing with systemic risks that could harm 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 and leading to a "culture of irresponsibility" that dominated Wall Street, said Mr Obama.

"Mortgage brokers will be held to higher standards, exotic mortgages that hide exploding costs will no longer be the norm, home mortgage disclosures will be reasonable, clearly written, and concise," said Mr Obama said.

And shareholders will be given more power to question executive bonuses.

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.