Tuesday, June 16, 2009

Obama reform plans target banks, securitization

Obama reform plans target banks, securitization
By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration will target critical weaknesses in the troubled U.S. financial system, such as thin bank capital cushions and eroded lending standards, when it proposes an overhaul of financial regulation this week, two senior officials said on Monday.
In the fullest summary to date of the administration's reform plan, Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers urged stronger consumer and investor protections, new "systemic risk" policing powers for the Federal Reserve, and less reliance on credit ratings.
The plan was outlined by the officials in The Washington Post ahead of the release on Wednesday of a detailed package of proposals that has been under discussion for six months.
President Barack Obama will speak on Wednesday on his "new rules of the road for the financial industry," a White House official said. Geithner will joint him at the event.
Obama has said he wants to enact changes into law by the end of the year. Several more months of debate lie ahead in Congress, with Democrats widely supportive of the president's plan. A group of U.S. House of Representatives Republicans last week unveiled a rival package of more modest proposals.
"The White House plan is similar to the House Republican regulatory reform legislation in some ways," House Republican Leader John Boehner said in a statement. "But it also includes a provision that would allow government bureaucrats to continue deciding behind closed doors who gets taxpayer funds."
In a sharp repudiation of government bailouts launched last year under the Republican Bush administration, some congressional Republicans are now making the slogan "no more bailouts" the centerpiece of their reform strategy.
Committees of the U.S. Congress have scheduled more than a dozen hearings between now and mid-July on financial reforms, congressional aides told Reuters on Monday.
At the same time, the powerful financial services industry is pushing to water down the Obama plan, with time on the side of the status quo, especially if the economy keeps improving and public outrage over the financial crisis fades.
Administration officials have argued that a rewrite of U.S. financial rules is needed to prevent future crises like the one that has been hammering world economies since early 2008.
The Geithner-Summers outline offered few new details not already known and it sidestepped questions about streamlining bank supervision and regulating over-the-counter (OTC) derivatives.
But it did clearly underline the administration's determination to give the Federal Reserve a central role, and to create a new way for the government to handle troubled, large, non-bank firms whose failure could pose a risk to the economy.
Geithner and Summers said a key goal will be "raising capital and liquidity requirements for all institutions," with tighter standards for the biggest, most interconnected firms.
In addition, they said, the big firms whose failure could threaten the entire system "will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system." Continued...
Source: Reuters

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