WASHINGTON: President Barack Obama yesterday proposed the most “sweeping” regulatory overhaul since the 1930s, vowing to stop future meltdowns in a financial system humbled by lax oversight, greed and huge debts.
The reforms, which must be approved by Congress, will inject the government deeper into financial markets and industries in a bid to tame the recklessness which saw a mortgage meltdown tip the world into deep economic crisis.
“We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind,” Obama said, unveiling his reforms at the White House.
“So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”
Obama blamed a “culture of irresponsibility” a Great Depression-era regulatory system, reckless executive compensation, excessive debt and markets awash in new and risky financial products for sparking the crisis.
“An absence of oversight engendered systematic, and systemic, abuse,” Obama said. “Instead of reducing risk, the markets actually magnified risks that were being taken by ordinary families and large firms alike. There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.”
The proposals would give the Federal Reserve new powers to clamp firm regulation on all finance firms or banks that pose a significant systemic risk to the wider financial infrastructure.
They would introduce new discipline and transparency into financial markets and would enable investors to better ride out the failure of one or more large financial institution.
As previously announced, the reforms will include the creation of a Consumer Financial Protection Agency to shield Americans from the extremes of credit, savings and mortgage markets.
The Office of Thrift Supervision — a federal bank regulator and supervisor — will be abolished under the reform proposals, officials said.
The agency came under fire for the near collapse of insurance giant AIG, which was eventually bailed out by the government for $180 billion, and the failure of Washington Mutual, the biggest bank to fail in US history. US investment banking icon Lehman Brothers had also collapsed at the height of the financial turmoil in September.
Some Obama critics, hoping for a top-to-bottom reconstruction of the greed-laced financial system, complained the overhaul did not go far enough, others said it would require too much government intervention in the economy.
The US Chamber of Commerce said the plan had several positive recommendations, but simply added to “the layering of the system without addressing the underlying and fundamental problems.”
The nonpartisan Financial Services Forum though described the proposal as “comprehensive and responsive” to deficiencies in the current system. The Services Employees International Union said the plan was a "significant first step towards reforming and holding accountable a financial system whose irresponsible, risky practices have destabilized our economy and devastated millions of hard working families."
