President Barack Obama revealed Wednesday a series of initiatives that he described as “the most sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.” He outlined the administration’s audacious plan to protect consumers, investors and homebuyers while creating a new structure that would prevent future financial meltdowns.
“A culture of irresponsibility took root from Wall Street to Washington to Main Street. With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse; we want a system that works for businesses and consumers,” Obama asserted in remarks delivered at press conference in the White House framing the program under his “New Foundation” theme.
The planks of the reform call for:
–Creation of the Consumer Financial Protection Agency, a watchdog agency that would regulate consumer lending as well as force lenders to clearly explain loan agreements and offer more “plain vanilla” financial products.
–Expansion of the Federal Reserve’s oversight of all large, interconnected institutions whose failure could jeopardize the financial system. Those firms would be required to meet higher capital and liquidity requirements, and if they are found to pose a risk, the Fed would be authorized to intervene.
–Development of a Financial Service Oversight Council to help fill in the gaps in regulation and identify emerging systemic risks. Replacing the President’s Working Group on Financial Markets, it would be chaired by Treasury and comprised of the heads of other financial regulatory agencies, including the newly-created post of National Bank Supervisor.
–Comprehensive regulation of markets for derivatives, including asset-backed securities and credit default swaps – investment vehicles that were largely cited as one of the leading causes of last year’s implosion of the financial markets.