US President Barack Obama was scheduled to announce reforms on Wednesday aimed at averting any repeat of the banking crisis that is still driving up unemployment around the world nearly two years after it struck.
British Chancellor of the Exchequer Alistair Darling was also set to demand a change in banking management yesterday.
The US government has been discussing for six months how best to tighten bank and market regulation in response to the crisis, which was triggered by increasingly risky investment particularly in US home loans during a long-running credit boom.
Obama said on Tuesday that a single regulator would oversee big banks. The smaller banks will remain under the supervision of, among others, the Federal Deposit Insurance Corp, which insures bank and thrift deposits, he said.
“What we do have under our proposal is that for tier-one institutions, the big institutions, who if they fail — require us to shore them up — for those folks, they are going to be under a single regulatory body,” Obama said in an interview with financial news television network CNBC.
“There is going to be streamlining, consolidation ... so that you don’t find people falling through the gaps,” Obama told reporters on Tuesday. “Whether it’s on the consumer protection side, the investor protection side, the systemic risks ... It’s going to be a much more effectively integrated system than previously.”
A senior US official told reporters the plan would also close one bank regulator, the Office of Thrift Supervision, and put the Federal Reserve in charge of monitoring big-picture economic risks.
While belief that the worst is past has propelled global stocks around 40 percent up from their March nadir, investors have begun to seek firmer evidence that a real upturn is in sight.
“Overall, the risk of a continued sharp contraction in output in the near term had receded somewhat,” the Bank of England said, explaining why it voted this month to keep interest rates at a record low of 0.5 percent and maintain its efforts to pump money into the economy by buying debt.
However, “even if developments over the month had been positive, the increase in confidence apparent in some financial market indicators and some household and corporate sector surveys remained fragile,” the bank said in minutes published yesterday.
Meanwhile, Britian’s financial chief Darling told BBC radio that bank executives’ lack of judgment was to blame for the depth of the financial crisis.
He acknowledged that banking regulations needed to be improved, but put the onus firmly on bank boardrooms to avoid a repeat of the current crisis.
“I am going to make the point very forcibly that the first line of defense is in the bank boardrooms themselves,” Darling said ahead of his main annual speech to the financial sector. “It is quite obvious that if you look at what has happened over the last few years, as more and more products became more sophisticated, more complex, quite simply too many people just did not understand what was happening and they didn’t understand the risks to which they were becoming exposed.
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