President Obama announced sweeping financial regulations this week that are designed to help the US avoid a financial meltdown like the one we have seen over the past 18 months. Obama’s plan would give the Fed more regulatory authority, create a new consumer protection agency, and bring unregulated sectors of the financial market under government oversight.

There are parts of this plan that are being received very favorably. For instance, getting rid of the Office of Thrift Regulation is being applauded, especially since they were one of the bodies that were supposed to be monitoring and regulating AIG. Over the years, financial institutions have avoided the title of “bank” to avoid certain regulations, even though they should have been regulated just as strictly as banks are regulated. Proponents of the plan also are pleased with efforts to protect consumers from the greed and carelessness that overtook the financial system leading up to our current issues.

There are also parts of the Obama plan drawing heavy criticism, the most glaring of which is the relationship between the Fed and the Treasury. The central bank has always been an independent body that is supposed to be free to act in the best interests of the country, unaffected by political pressure. The Treasury will now have the power to influence and even veto Fed decisions, and the Fed will have to get permission from the Treasury Department before implementing certain actions. The fear is the politics could easily creep their way into what is supposed to be an impartial body.

From a high level overview, these will be big changes in the financial world if they are put in place. For consumers, most day to day business with financial institutions won’t be much different than it is currently. These moves are designed to help make sure that what banks are doing behind the scenes is not putting shareholders and depositors at risk. The changes that we do notice will likely be seen sooner than later, as the legislation is on a fast track and expected to be in place by the end of the year.

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Tags: Consumer Protection Agency, Fed, Oversight, Treasury

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