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Obama plans regulatory overhaul; markets cautious

Obama plans regulatory overhaul; markets cautious
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First Published: Wed, Jun 17 2009. 10 23 AM IST
Updated: Wed, Jun 17 2009. 10 23 AM IST
Washington: President Barack Obama will unveil on Wednesday plans for sweeping reform of US financial regulation, aimed at averting future crises like the banking meltdown that has plunged the global economy into recession.
The initiative comes as economic data continues to show the United States mired in its deepest downturn since the Great Depression, with only tentative signs of a recovery beginning to take hold.
Most Asian stock markets fell on Wednesday, mirroring falls in US indexes overnight. Global stocks have rallied around 40% from their March nadir on hopes that the world economy is past the worst of the slump, but now investors are pausing.
“The worry is we’ve gone too far too fast and that we’ve overstated the strength of a recovery in the economy and earnings,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York.
The worst economic slump in six decades was triggered by bank failures and market turmoil that followed big losses on risky home loans when a US housing boom turned sour in 2007.
The US government has been discussing for six months how best to tighten bank and market regulation in response to the crisis, with the European Union moving on a similar track.
A senior US official told reporters in a conference call on Tuesday that the plan would see one bank regulator, the Office of Thrift Supervision, closed and put the Federal Reserve in charge of monitoring big-picture economic risks.
“There is going to be streamlining, consolidation ... so that you don’t find people falling through the gaps,” Obama told reporters earlier on Tuesday.
“Whether it’s on the consumer protection side, the investor protection side the systemic risks ... It’s going to be a much more effectively integrated system than previously.”
Obama will present his proposals at 1650 GMT (10.20 pm) on Wednesday, the White House said.
Caution Grips Markets
Data on Tuesday from the US housing market, where the global financial crisis was born, showed construction of new homes rebounded in May.
But analysts said the figures, paired with news of a larger-than-expected drop in US industrial output, had yet to signal conclusively that any recovery was on the way.
Investors are seeking any sign that the worst of the global recession may be over, despite appeals for caution from officials who fear that markets will surge, only to dive again if the real economy fails to revive.
The MSCI index of Asia Pacific shares outside Japan fell 1.5% and looked set for its fourth consecutive day of losses, while Japan’s Nikkei was up marginally.
“The market does need to come off because lot of cyclicals have become very expensive very quickly,” said Damien Boey, equity strategist at Credit Suisse in Australia.
“There is still economic recovery in the wings and we are still yet to see it in the data and the financials have not actually gone up in full measure.”
The US dollar was largely unchanged on the day against the euro and yen , after Brazil, Russia, India and China concluding their first summit together, issued a joint statement that did not mention any doubts about the dollar’s role as the primary reserve currency.
The dollar had been under some pressure heading into the summit of the so-called Bric nations on fears that Russia, which has publicly made clear it wants to have new world reserve currencies, would coax China into bashing the dollar together.
Instead, the world’s biggest emerging economies issued a communique that demanded more power for developing nations in international financial institutions and the United Nations.
“We are committed to advance the reform of international financial institutions, so as to reflect changes in the world economy,” the Bric countries said.
“We also believe that there is a strong need for a stable, predictable and more diversified international monetary system.”
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First Published: Wed, Jun 17 2009. 10 23 AM IST
More Topics: Financial | Regulation | Obama | US | Banks |