Obama releases proposal to regulate financial system

Obama described the plan as “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression”.

Regulatory power to Federal Reserve
The 88 page document released Wednesday calls for entrusting more powers to the Federal Reserve to supervise some of the largest financial institutions, labeled “Tier 1 Financial Holding Companies”, whose failure could cause harm to the economy.

The proposed plan would give power to the government to take over troubled banks, the power it does not have now, and ensure that financial institutions hold onto some mortgage backed securities that they create and sell to investors.

Creation of Consumer Financial Protection Agency
A separate Consumer Financial Protection Agency would be created, with the authority to regulate financial products. The agency would ensure that financial institutions offer 'plain vanilla' products, like credit cards, without hidden charges or high interest rates.

"The new agency is about making consumer credit markets work," said Elizabeth Warren, chairman of the Congressional Oversight Panel, which oversees the government's Troubled Assets Relief Program.

Proposal addresses all areas
The proposal did not leave any area of the financial industry untouched. It addressed capital, mortgages, derivatives, insurance companies, mutual funds and real estate.

In all, the proposal cheered consumer advocates. "We are called upon to put in place those reforms that allow our best qualities to flourish — while keeping those worst traits in check," Obama said.