Global Financial Strategy - Barack Obama, US President

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Barack Obama, US President

Monday 17 January 2011 – by Nicola York

President Obama has been a key figure in overhauling US financial regulation as well as a formidable presence on the world stage at the G20. He comes sixth in the GFS Power 50.

The President signed into law the biggest overhaul of US financial regulation in decades last year and oversaw the big themes of the financial reform bill.

The law was one of Obama’s major victories in 2010 as it was passed despite strong opposition from the financial services community and was without bipartisan Congressional support.

Nearly every Republican opposed the law saying it would prove burdensome to businesses and would stilt the economy and the financial system. They said it failed to address the root causes of the crisis it is supposed to prevent.

The law tightens mortgage and consumer lending rules and establishes a new consumer protection agency. There are new bank resolution provisions and financial institutions are banned from proprietary trading. Derivatives will be regulated for the first time and will have to be traded through public clearing houses or exchanges. It also aims to eliminate government bailouts.

One of the key reforms that Obama wanted to drive through and failed to, except in limited form, was the Volcker rule. On the advice of former Federal Reserve chairman Paul Volcker, Obama had the US Treasury draft legislation which would have forced banks to stop trading financial instruments with their own capital and give up their stakes in hedge funds and private equity funds.

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But this faced heavy resistance in the Senate and in the end, was enacted in softened form under Dodd-Frank with banks allowed to invest up to 3 per cent of their tier 1 capital in hedge funds and private equity firms.

Obama also faced criticisms over the omission from the bill of legislation dealing with the problems of Fannie Mae and Freddie Mac, which he said would be dealt with later.

The President said the bill was necessary to prevent future economic disaster and said the crisis was caused by a breakdown in the financial system and “a failure of responsibility from certain corners of Wall Street to the halls of power in Washington”.

He said it was important that the new regulations would make it more profitable for financial institutions to play by the rules than to try and get around them.

When signing the law he said: “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.” But this was in doubt last week as House Financial Services Committee chairman Spencer Bachus argued that the concept of being too big to fail has not been written out of Federal Law.

Learn more about the GFS Power 50, a countdown of the most influential people in worldwide financial regulation in 2010.

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