Single regulator for big banks under Obama's reform plan
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US President Barack Obama has said that a single regulator would oversee big banks under proposed financial reforms to be unveiled Wednesday. The reforms aim to prevent a recurrence of financial turmoil.
AFP - US President Barack Obama said Tuesday that a single regulator would oversee big banks under proposed financial reforms aimed at preventing a reoccurrence of financial turmoil.
The smaller banks will remain under the supervision of, among others, the Federal Deposit Insurance Corporation (FDIC), which insures bank and thrift deposits, he said ahead of the unveiling of the proposed reforms Wednesday.
"What we do have under our proposal is that for tier-one institutions, the big institutions, who if they fail -- require us to shore them up -- for those folks, they are going to be under a single regulatory body," Obama said in an interview with financial news television network CNBC.
He was asked about the prospect of a single US regulator for banks, many of which were tested to the limits during the financial crisis stemming from a home mortgage meltdown that rocked markets across the globe.
"This is something we've been concerned about in the past," Obama said, pointing out the "overall concept" of regulatory reform was "not to completely abandon those aspects of the system that worked but rather focus on those aspects of the system that didn't -- try to close gaps".
As for the smaller banks, Obama said the FDIC "has done a good job on that."
Obama's attempt to revamp the financial regulatory system is his latest bid to address financial industry excesses and laxity blamed for pitching the US and global economy into crisis.
US investment banking icon Lehman Brothers collapsed at the height of the turmoil in September, triggering a mass stock sell-off and shaking the foundation of the US financial system.
Obama said his administration had assessed whether the authorities had the tools "to prevent the kinds of risk that we saw back in September and our conclusion: we didn't."
"We want to do it right. We want to do it carefully. But we don't want to tilt at windmills. We want to make sure we're getting the best possible regulatory framework in place so that we're not repeating the mistakes of the past," Obama explained.
A key component of the reforms, Obama said in a separate interview with Bloomberg television, was "to make sure that we've got a systemic regulator, somebody who can oversee the entire system and, when you start seeing the kinds of risks that we saw being taken in this last crisis, that we can catch it before the crisis occurs."
Obama also plans to set up a federal consumer financial protection agency to shield Americans from predatory practices from credit card firms, banks and mortgage markets under the revamp, an administration official said.
The planned Consumer Federal Protection Agency (CFPA) will cover credit, savings and other payment markets, the official said.
It will be guided by five principles, the official said on condition of anonymity, including "transparency, simplicity, fairness, accountability, and access."
US Treasury Secretary Timothy Geithner and chief White House economic adviser Lawrence Summers broadly outlined their plan to better regulate the finance industry in an op-ed piece in The Washington Post on Monday.
The government is set to impose stringent capital and liquidity requirements for the largest and most "interconnected" financial firms, they wrote.
All large financial institutions whose failure could threaten the stability of the system will be subject to supervision by the Federal Reserve.
The government will also establish "a council of regulators" with broader coordinating responsibility across the system.
Geithner and Summers further argued that the dramatic growth in financial activity outside the traditional banking system, such as the spread of asset-backed securities, has led to "an erosion of lending standards" which deepened the collapse of the housing boom.