Obama proposes financial reform
“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.”
Obama’s two key proposals were to limit the types of operations that a bank may undertake and to limit the size of the largest financial firms.
Under the proposals banks would be prevented from owning or investing in hedge fund or a private equity fund. Nor would they be allowed to sponsor such funds. To limit size of financial institutions, further consolidation of the financial sector by restricting growth in the market share of their liabilities.
Obama called the restrictions on banking operations the “Volcker Rule” in reference to Paul Volcker, the chair of the President’s Economic Recovery Advisory Board. These activities are “unrelated to serving their customers,” Obama said.
According to Obama, the current “economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses. When the dust settled, and this binge of irresponsibility was over, several of the world’s oldest and largest financial institutions had collapsed, or were on the verge of doing so. Markets plummeted, credit dried up, and jobs were vanishing by the hundreds of thousands each month. We were on the precipice of a second Great Depression.”
The President said his administration is seeking to protect consumers and close loopholes that allowed financial products such as credit defaults swaps without oversight. The goal would be to strengthen capital and liquidity requirements to make the financial system more stable. Another goal of Obama’s reforms would be to ensure that the failure of one firm could not take the entire economy.
“We’ve come through a terrible crisis. The American people have paid a very high price. We simply cannot return to business as usual. That’s why we’re going to ensure that Wall Street pays back the American people for the bailout. That’s why we’re going to rein in the excess and abuse that nearly brought down our financial system,” Obama said in closing.
Before any of the proposals can go into effect, they will have to be passed into law by both houses of the United States Congress.