The US government has announced a major reform of banking regulation to prevent future financial crises. The overhaul will require big banks to put more money aside against future losses to curb excessive risk taking. Consumers will get a special agency to protect their interests and regulate mortgages and credit cards.
Peter Morici of the Smith School of Business at the University of Maryland described the changes as "a huge bureaucratic overreach that will prove ineffective and too costly".
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 blamed for exacerbating the financial crisis and leading to a "culture of irresponsibility" that dominated Wall Street, said Mr Obama.
"Mortgage brokers will be held to higher standards, exotic mortgages that hide exploding costs will no longer be the norm, home mortgage disclosures will be reasonable, clearly written, and concise," said Mr Obama said.
And shareholders will be given more power to question executive bonuses.
The reforms will enhance the power of the Federal Reserve to supervise and ultimately order the takeover of any financial institution in trouble. But central bank will have to gain Treasury Department approval before it can offer more credit to firms in "unusual and exigent circumstances." It was the inability of the US government to take over Lehman Brothers that threw the financial markets into turmoil in September last year.
A new council of regulators, the Financial Services Oversight Council is to be created to co-ordinate the supervision of the banking system. Meanwhile, one banking regulator - the Office of Thrift Supervision - will be abolished. And the Fed will lose some of its powers to regulate mortgages to the new Consumer Financial Protection Agency.
I still haven't heard enough to know whether these proposed changes will help much or whether they'll just add more bureaucracy - to say nothing of whether they'll have any chance of making it through congress intact. Thoughts?