2009-06-18 01:26:15  

    WASHINGTON, June 17 (Xinhua) --

U.S. President Barack Obama Wednesday unveiled new "rules of the road" for the nation's outdated financial system, the most significant regulatory transformation since the Great Depression in 1930s.

    Under the plan, the government will make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system.

    It also will create a council of regulators with broad coordination responsibility across the financial system. The council will discuss systemic risks but the Fed will not need its approval to act against them.

    Hedge funds, derivatives and consumer mortgages, all blamed for the current crisis, will thus be under the supervision by the government.

    And institutions that originate loans would be required to retain 5 percent of the credit risk when the loans are turned into securities.

    "While this crisis had many causes, it is clear now that the government could have done more to prevent many of these problems from growing out of control and threatening the stability of our financial system," said the 85-page white paper released by the Obama administration.

    In a speech at the White House, President Barack Obama said the current crisis is due to "a cascade of mistakes and missed opportunities" which took place over several decades.

    "A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope, and sophistication of a 21st century global economy," he said.

    "We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind," said Obama. "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."

    "It's time for that to change. I am proposing that the Federal Reserve be granted new authority -- and accountability -- for regulating bank holding companies and other large firms that pose a risk to the entire economy in the event of failure," said Obama.

    Treasury Secretary Timothy Geithner and Lawrence Summers, director of the White House's National Economic Council, said in an opinion piece published Monday in the Washington Post that the Fed would become a "systemic risk regulator" for "large, interconnected firms whose failure could threaten the stability of the system."

    "All large, interconnected firms whose failure could threaten the stability of the 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," the two leaders wrote.

    There will also be a new regulator to protect consumers and investors from risks in the financial world.

    The new regulator, an independent Consumer Financial Protection Agency, would have the sweeping authority to impose fines and allow states to pass laws that are stricter than the federal standards.

    Consumer protections are now spread among various state and federal authorities, including the Fed, the Securities and Exchange Commission, the Federal Trade Commission and banking regulators.

Editor: Yan

Wall Street differs on Obama's financial regulatory reform plan

2009-06-18 09:08:07  

    by Xinhua Writer Chen Gang

    NEW YORK, June 17 (Xinhua) --

As the Obama Administration released its proposal to make the most sweeping changes in bank regulation in 75 years, Wall Street differed on the effect of the overhaul plan.

    "We applaud the Obama Administration's proposal to overhaul the financial regulatory structure as a critical step toward restoring trust in capital markets," said Duncan L. Niederauer, chief executive officer of NYSE Euronext Wednesday.

    The administration's proposal, which released Wednesday, comes after a year of shocks on Wall Street and a credit crunch that contributed to the worst U.S. recession in half a century.

    "Regulatory reform must protect investors, close regulatory gaps and enhance market transparency, while at the same time continuing to encourage the spirit of innovation that has fueled decades of economic growth, produced new products and services and created jobs," said Niederauer.

    "Our regulatory system is vastly outdated, and we are encouraged by the Administration's enthusiasm for reform and welcome the opportunity to contribute to this truly important initiative," said the CEO.

    Under the proposal, much of which will be subjected to approval by Congress, the government will make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system. Hedge funds, derivatives and consumer mortgages, will be all under the supervision by the government.

    Bob Greifeld, chief executive officer of the NASDAQ OMX Group, a major competitor of NYSE Euronext, also praised the new plan.

    "The administration has been diligent and comprehensive in its approach to financial regulatory reform," he said. "With the complexity and interconnectedness of markets today, the administration has recognized that details matter and global cooperation matters. The proposal affirms important principles to protect the American investing public while offering pragmatic solutions for updating and improving our financial system."

    "We strongly support the Administration's dedication to embracing full transparency in the Over-the-Counter markets. NASDAQ OMX believes in better, smarter regulation as opposed to more regulation, and we look forward to the administrations' efforts to reconcile regulatory gaps and redundancy in financial regulation," said Greifeld.

    However, some experts doubt the massive increase in government control over the financial system and the economy could hurt the financial industry.

    "The President's economic team is clearly focused on the big picture problem, how to identify systemic risk and how to monitor and regulate the industry, to avoid a repeat of the disasters of the past year," said Mr. Lynyak, a former FDIC Honors Fellow who currently sits on the American Bar Association's Banking Law Committee and who formerly chaired the ABA's subcommittee on FDIC Receiverships and Conservatorships.

    "However, the plan must give someone both the authority to decide that we have a systemic risk threatening the system and the power to pull the emergency brake on a runaway economic freight train," he added. "If the proposal does not clearly delegate this power and authority, it will simply be adding another layer of bureaucracy to an crowded regulatory framework."

    "The financial industry will retain the same potential dangers of systemic risks, with no appointed authority to stop the train from crashing again," said Lynyak. "There are a number of open-ended questions that the proposal has to protect against."

    "Will the public and Congress restrain themselves from punishing individuals they hold responsible for derailing the economy? Will Americans be able to live with the short-term pain of having the economic brake pulled in order to prevent a system-wide wreck further down the tracks?"Lynyak asked.

    Analysts are worrying that U.S. banks could become less competitive and less profitable from President Obama's proposed financial overhaul.

    "These regulations are so sweeping, so comprehensive and so expensive there's no question about the fact that they will lower the profitability of the industry," said Richard Bove, banking analyst with Rochdale Securities.

    The S&P downgrade hit the financial sector Wednesday, sending the KBW Bank Index down more than 5 percent at one point before paring some of its losses.

    "We also don't know if any of the new regulations from the Obama White House and Treasury will deal with the moral-hazard question of 'too big to fail'. There will be new resolution authority to close down banks, but whether that will apply to the big banks remains to be seen," said Larry Kudlow, a CNBC anchor in his comment.

Editor: Zhang Xiang

Ten large U.S. banks finishing repaying TARP fund

2009-06-18 05:55:43  

    NEW YORK, June 17 (Xinhua) --

The 10 large U.S. banks that were approved to repay about 68 billion U.S. dollars of government rescue fund early are expected to finish their payment on Wednesday.

    According to separate statements from the banks, JPMorgan Chase& Co. repaid 25 billion dollars, and New York-based Morgan Stanley and Goldman Sachs Group Inc. each gave back 10 billion dollars. U.S. Bancorp refunded 6.6 billion dollars and BB&T Corp. paid 3.1 billion dollars.

    The ten banks are among the largest U.S. financial institutions. U.S. Treasury announced last week that the banks could begin repaying money they received under the 700-billion-dollar bailout fund known as the Troubled Asset Relief Program (TARP). All of the ten banks will finish repaying the money on Wednesday, the U.S. Treasury said in a statement.

    In addition to the money they're returning, the banks have paid Treasury more than 2 billion dollars in dividends that were mandated under the TARP program.

    Treasury will recover 70 billion dollars in total under the TARP program, including a 2-billion-dollar early payment from smaller banks.

Editor: Yan