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US bank reforms unveiled

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US bank reforms unveiled

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President Barack Obama has laid out his administration’s plan to avoid future economic crises by reforming the US financial regulatory system.

He said the sweeping overhaul would mean a transformation on a scale not seen since the reforms that followed the Great Depression of the 1930s: “With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles bring the risk of financial collapse; a system that works for businesses and consumers.” The proposals include expanding the role of the Treasury Department. In an attempt to restore investor confidence, there will be tighter oversight of the biggest financial firms whose excessive risk-taking triggered the global recession. However the much criticised Office of Thrift Supervision, which has been overseeing stricken companies like mega-insurer American International Group and various failed lenders, would be closed down in order to streamline bank supervision. The US central bank, the Federal Reserve, would get new powers and be put in charge of monitoring the largest US financial firms. The hope is that holding one agency accountable will prevent a repeat of the severe banking and capital markets crisis that has battered economies around the world. The plan also calls for the establishment of an independent consumer financial products watchdog agency to regulate mortgage and credit card lenders and to prevent things like sub-prime loans. Obama wants everything in place by year’s end but that could be difficult given opposition in the US Congress.