Obama administration starts its run to overhaul the US financial system

 On Tuesday a landmark bill to regulate the US financial system was unveiled by the Obama administration. The draft legislation aimed to address systemic risk in the economy is still to be approved by the US Congress. Meantime, the government has gained congressional committee approval for a measure to expose hedge funds to more government scrutiny.

Under the proposed regulation huge powers would be granted to a new systemic risk regulatory council, the Federal Reserve and the Federal Deposit Insurance Corp to monitor and address risks to economic stability posed by shaky financial holding companies.

The bill specifies that those companies that are found severely undercapitalized could be rearranged or even shut down by the regulators while managers would be likely dismissed with credit exposures limited, pay and bonuses restricted, acquisitions and new ventures blocked.

The bill is intended to prevent bailouts like last year's rescues of AIG, Citigroup and Bank of America while shifting the costs of further potential stabilization efforts onto the industry itself away from taxpayers. This is partially to be achieved by forcing financial firms with more than $10 billion in assets to foot the bill for any losses from Federal Deposit Insurance Corp actions to resolve the problems of failing firms.

"We cannot meet these tests with a set of small changes at the margin," Obama said in a letter to Barney Frank, chairman of the House of Representatives Financial Services Committee, that also stressed the importance of building a stronger financial system in which no firm was "too big to fail."

Meantime, the US Treasury Secretary Timothy Geithner said that bankers could not do America in the eye and argue that financial regulation is fine as it is.

"It's a war of necessity, not a war of choice," he said at the Securities Industry and Financial Markets Association annual meeting in New York. "And it's a just war."