Obama to unveil financial reforms plan tomorrow

16 June 2009

US President Barack Obama is expected to come out with a financial-market reorganisation package that would deal with banking, mortgages, underwriting, and other financial instruments traded in the market.

The plan, which the administration officials are referring to as a "white paper," is likely to be unveiled as early as tomorrow.
 
It is expected to give sweeping power to the Federal Reserve, give the government the power to interfere in systemically important companies, and create a new regulator for consumer-oriented financial products.

Once Obama unveils the proposal, Congress would have to pass the legislation to enact the changes. Treasury secretary Timothy Geithner is scheduled to appear before both Senate and House panels on Thursday.

The plan is aimed at reshaping the US financial market in the background of rising number of failed banks and severe credit crisis. Experts were asking for a new system in place of just bailouts which involve a lot of taxpayers' money. The near collapse of American International Group (AIG), and about $700 billion in bank rescue operations have drawn severe criticism on the way the financial markets are functioning in the US.

A council of regulators will also be set up to allow greater co-ordination and feedback between the various supervisors, and to ensure that the largest, most inter-connected firms are being fully regulated in all areas of their business.

There will also be requirements for issuers of asset-backed securities to retain 5 per cent of the risk they are securitising on to others, as well as creating a new body to regulate on behalf of consumers.