A new era of regulation...

Pres. Barack Obama announced on Wednesday fundamental changes to the regulatory environment in which U.S. businesses operate in the financial industry. Financial Times reported as follows:

Big US companies ranging from Wall Street banks to insurers, investment groups and General Electric on Wednesday faced fundamental changes in the business environment as President Barack Obama proposed what could be the biggest regulatory revamp since the 1930s.

The plan, which still must win congressional approval, includes not only traditional lenders, but any company with significant financial operations, such as GE.

Remuneration and profits at Wall Street and beyond could be hit by the reforms, which would see the administration attempt to tighten capital and leverage rules at global banks.

The administration sees the new rules as a rejection of Alan Greenspan light-touch approach.

“A culture of irresponsibility took root from Wall Street to Washington to Main Street,” said Mr Obama on Wednesday. Mr Obama said he did not undertake intervention into the economy lightly. “We are called upon to recognise that the free market is the most powerful generative force for our prosperity – but it is not a free licence to ignore the consequences of our actions,” he said.

Corporate experts said the extension of the Fed’s powers would change the playing field for companies with finance operations, including Ford and General Motors, and others. It also could affect the strategies of companies such as retailer Wal-Mart, which had considered entering the financial sector.

Large private equity groups and hedge funds such as Blackstone and Fortress could also come under the Fed’s purview if their size and importance to the economy continues to grow.

The proposals attempt to bring transparency to previously opaque areas of financial markets, such as over-the-counter derivatives trading, and give the government unprecedented power to seize failing institutions.

The new powers are intended as a response to the authorities’ inability to deal with the failure of large financial companies, such as AIG and Lehman Brothers, which were systemically important but remained outside the purview of the main US banking regulators.