President Obama’s Plan to Overhaul Financial Rules

It’s been 75 years since a president has proposed such a far-reaching overhaul of the rules that govern U.S. finance. The last president to take such action was Franklin Roosevelt. Bankers hated Roosevelt’s reforms; FDR didn’t care. He was popular and he was battling the Great Depression. Roosevelt created the Securities and Exchange Commission, guaranteed bank deposits, and separated banking from investment banking. Those reforms worked pretty well for a long while. Until last year, that is.

President Obama is calling for a new set of reforms, to deal with a new set of challenges. Here’s part of his speech from June 17th.

“It is an indisputable fact that one of the most significant contributors to our economic downturn was an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis — the Great Depression — was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.”

President Obama’s plan has three main tenets:

1. Regulators will not look only at the safety and soundness of financial institutions, but also at the financial system as a whole.

2. Creation of a new agency to look out for consumers.

3. A series of changes to close gaps and overlaps in the regulatory system.

(The Brookings Institution provides a nice summary of the plan, as does the BBC.)

The Wall Street Journal editorial board argues that the president’s plan amounts to a modest reshuffling of bureaucratic furniture. Joe Nocera of the New York Times says that this is not Roosevelt redux, and that President Obama should go further.

This debate will be played out for months in Congress: Will more regulation help the economy or hinder it?

Meanwhile, across the pond in the UK, they’re grappling with the same question.

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