Obama outlines regulatory overhaul for US financial system
US President Barack Obama is proposing a major reform of banking regulation in order to prevent future meltdowns of the US banking system.
Mr Obama described the reforms as biggest overhaul of the system since the 1930s, which will see major banks put more money aside against future losses to prevent excessive risk taking.
The objective is to tackle the weaknesses that the sub-prime crisis and the financial meltdown revealed in the US regulatory system.
Speaking of the reforms, Mr Obama said: “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.”
Furthermore, shareholders will be given the capacity to query bonuses given to senior executives at banks.
Meanwhile, the reforms mean more power will be given to the Federal Reserve and it will eventually be able to instruct the takeover of any struggling financial institution, while a new consumer protection agency will be established to bring big business and banks under control.
The reforms will see the US achieve its commitments made at the G20 summit in London in April this year, in a joint global effort to strengthen financial regulation.
While the reforms were welcomed by some, Peter Morici of the Smith School of Business at the University of Maryland, described them as “a huge bureaucratic overreach that will prove ineffective and too costly”.
In other news, Mervyn King, the Governor of the Bank of England, is calling for major regulatory reform, but Chancellor Alistair Darling said there are no plans to change the current regulatory system.
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