Obama just announced his plans to overhaul the financial system in what is going to be the most ambitious regulatory change since the Great Depression.
The president’s reasoning was that while the regulation first set in the 1930s are sound, the speed, scope and sophistication of the global economy of today needs a refreshed set of rules.
As rumored, the Federal Reserve will oversee the entire financial system and act as the super regulator, as well as create a new consumer protection agency to monitor and combat credit abuses.
No longer will you see the Office of Thrift Supervision, and instead there will be a system that won’t allow banks to shop for the most lenient bank regulator. The new system will also impose restrictions on lenders and mortgage brokers so only simple and straightforward loans are offered to the public.
For those that fear the Fed’s new found powers, there are details in the plan to offset it’s powers. In particular, the Fed will need to obtain the Treasury Department’s approval before giving credit to any financial institution under the new rule, which adds a safety check into the system.
Under the new plan, it will also force more disclosures by hedge funds as well as regulation of credit default swaps and derivatives that are currently unregulated.
Who knows whether this thing will pass or not, but it’s nice to see that at least something is being attempted. However, I bet that the financial industry will just find a way to get around all this. So will it work?