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President Obama Announces Financial Regulation Reform

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FT: US groups face regulatory revamp

Big US companies ranging from Wall Street banks to insurers, investment groups and General Electric on Wednesday faced fundamental changes in the business environment as President Barack Obama proposed what could be the biggest regulatory revamp since the 1930s.

The plan, which still must win congressional approval, would give the Federal Reserve new powers to oversee companies whose failure could endanger the banking system – a category that includes not only traditional lenders, but any company with significant financial operations, such as GE.

Remuneration and profits at Wall Street and beyond could be hit by the reforms, which would see the administration attempt to tighten capital and leverage rules at global banks in negotiation with the Basel Committee on Banking Supervision. Read more at Financial Times.

CNBC: US Bank Profits Could Be Hurt By Financial Reforms: Analysts

US banks could become less competitive—and less profitable—from President Obama's proposed financial overhaul, analysts say.

As details of the sweeping plan emerged, there was worry among investors that the sector—which has been recovering in recent months from last year's financial crisis—could take another hit.

Among the biggest concerns: that increased regulation would reduce risk and leverage—which have been the main engines of growth in recent years.

"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," says Richard Bove, banking analyst with Rochdale Securities. "As part of these regulations there's a demand to increase capital almost consistently, which lowers the leverage of the bank and lowers its potential profitability." Source: CNBC

CNBC: Kudlow: Fed Overseeing Systemic Risk? What a Mess

The big winner of the Obama financial-regulation plan appears to be the Federal Reserve, which becomes the consolidated supervisor of large, systemically important banks.

This is like the fox guarding the henhouse. After all, the Fed’s overly loose money policies created the asset bubble — including housing, commodities, and energy — in the first place. Near-zero interest rates, huge money growth, and total disregard for the plunging dollar are what set up the housing boom and the unfortunate overleveraging by consumers, mortgage borrowers, and Wall Street securitizers. Kudlow at CNBC

Telegraph: Strengthened Federal Reserve is key to Obama overhaul of US financial regulation

President Barack Obama has outlined the most comprehensive overhaul of the US financial regulatory framework in 70 years in an attempt to stop the banking meltdown of the last two years from reoccurring and to "build a new foundation for sustained and lasting growth".

Introducing the sweeping reforms, the centre-piece of which strengthens the hand of the Federal Reserve beyond all others, the US President said that he wanted to eradicate "a culture of irresponsibility" which had taken "root from Wall Street to Washington to Main Street."

In its place he plans to deliver "strong, vibrant financial markets, operating under transparent, fairly-administered rules of the road that protect America's consumers and our economy from the devastating breakdown we've witnessed in recent years."

The main changes outlined include:

  • a strengthened Federal Reserve to take responsibility for major banks, which will be subject to tighter regulation;
  • a council of regulators to identify gaps in regulation while eradicating the outdated Office of Thrift Supervision;
  • the development of a 'resolution authority' to seize non-bank financial firms whose collapse would pose a systemic risk;
  • the creation of a new consumer protection agency;
  • tighter rules on risky products at the heart of the credit meltdown including derivatives and asset-backed securities;
  • and to work with international regulators on uniform standards.

Source: Telegraph

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