Wednesday, June 17, 2009

US unveils banking (good and bad) reform plans

Some good and some bad...

The US government has announced a major reform of banking regulation to prevent future financial crises.

GOOD But will it vary with M4?:The overhaul of the banking system will require big banks to put more money aside against future losses and is meant to curb excessive risk taking.

Depends on the regulation:Consumers will get a special agency to protect their interests and regulate mortgages and credit cards.

What will they be monitoring???The US central bank, the Federal Reserve, will be given the authority to monitor major financial institutions.

President Obama was speaking on Wednesday regarding the reforms, which mark the biggest shake-up of the US system of financial regulation since the 1930s.

The aim is to deal with the weaknesses that the sub-prime crisis and the financial meltdown revealed in the fragmented US regulatory system.

Issues include dealing with systemic risks that could bring down the whole financial system, raising capital requirements for banksThis is good as excess credit caused by zero reserve requirements caused the problems, ensuring that the government can take over failing institutions, and protecting consumers and investorsInsolvent Banks need to be administrated out of existence not proped up.

A new Consumer Financial Protection Agency will be created and the Federal Trade Commission will gain new powers to protect consumers, as well as more powers for the Securities and Exchange Commission, for the benefit of investors.

There will be more regulation of hedge funds, securitised debts and over-the-counter derivatives, all of which have been WRONGLYblamed for exacerbating the financial crisis.

It will also aim to give shareholders more power to question executive bonuses.

The reforms will also fulfil the commitments made by the US at the G20 summit in London to join in the worldwide effort to toughen financial regulation.

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