This past week, talks in Washington centered on regulating the financial industry. The Obama administration has proposed to give the Fed systematic powers in overseeing the banking sector as a whole. A lot of lawmakers are criticizing this plan, arguing that giving too much power to the Fed might be risky. There is currently limited disclosure about the Fed’s multibillion-dollar lending programs. If they weren’t transparent in the past, why would they change in the future? Another concern is the structure of the Federal Reserve itself. Regional branches are not classified as government agencies.

Meanwhile, other lawmakers cite that the Fed has a conflict of interest. If it tasked to conduct monetary policy then it might not be the best body to supervise banks. Senior Fed officials have argued, however, that the two tasks are actually complementary. Since the agency is involved in crisis stabilization, they need to have other roles in the financial system.

Whatever the case may be, ultimately, it is the public who has to pay for the decisions made on Capitol Hill. Bloggers from all over the country have expressed their opinions about these developments. Here is a list of blogs that talk about the Fed’s proposed systematic role, the criticisms of the system, and how it will affect ordinary Americans:

Paul Joseph @ Prison Planet wrote an insightful blog post entitled “Ron Paul Slams Federal Reserve’s New Dictatorial Powers“. Here, he provides a lot of quotes from Ron Paul and explains his argument. The criticism of Obama’s proposal is centered on giving the Fed additional authority. It might be too risky for the industry as a whole.

The Look at Vietnam blog provides updated information about the news in Capitol Hill. One article uploaded this week is titled “Geithner Says Federal Reserve Best Positioned for Super Regulatory Role“. It explained the position of the Treasury Secretary. He also said that the plan will only give the Fed a modest amount of additional powers.

Sudeep @ the Wall Street Blog wrote an in-depth blog post, “Financial Regulation: Congress Takes on the Federal Reserve“. It basically outlines the arguments lawmakers have over Obama’s proposed reform and the administrations answer to these concerns.

The Federal Reserve took a lot of flak from lawmakers when it failed in its oversight responsibilities and the financial crisis occurred. Now, it seems that the Obama administration is planning to remedy this situation by endowing the agency with the authority to oversee systematic risk. If this plan passes Congress, it will usher in the Fed’s biggest reform in decades. At the same time, the Federal Reserve’s emergency lending capabilities will be limited.

The proposed financial regulation will require the central bank to get written consent from the Treasury before it can give emergency bailout funds. In addition, Obama wants a comprehensive review on how the agency regulates financial companies. In essence, the move is a proposal that aims to prevent regulatory loopholes that result to risk build-up. However, a significant part of the plan requires the approval of Congress where ideological clashes will likely occur. Despite this, the president wants to sign the bill at the end of this year.

New Fed Oversight Responsibilities

Everything from mortgage lending practices to investment strategies will be affected in the government’s across-the-board effort to stop reckless decision-making that helped spark the economic crisis. According to Obama, “we have to have somebody who is responsible for seeing the risk of the system as whole and not just individual institutions.” He added that the “Fed is best positioned to do that”.

Essentially, the plan will overhaul the outdated financial system and make way for fundamental changes. Instead of using a “bulldozer” to clear the path to reforms, senior government officials likened the reforms as restructuring an existing system. It can be likened to an architect’s blueprint for improving an old structure.

Obama’s 85-page white paper outlines the reason why the economic crisis occurred and gave proposals on how these loopholes can be plugged. Among the most notable reasons include the yawning gaps in regulation that allowed banks to lend to borrowers that cannot afford it. Funding these loans can from exotic investments that regulators poorly understood. In addition, problems with executive compensation were also tackled.

A proposal for a complete regulatory overhaul is expected to be revealed this Wednesday and the Obama administration is expecting stiff resistance to certain aspects of the proposal from banking companies. Almost all areas related to banking operations will be touched by the proposed legislation; ranging from how consumers are charged on credit card debts to how exotic financial instruments are packaged.

The outcome of Obama’s proposed financial reorganization will have a large impact on how banks operate in the future. Varying interest on different segments of the economy, from business to consumers to the government needs to be ironed out. Talks about regulatory problems will likely dominate the discussions in Capitol Hill for the succeeding months.

At the center of the regulatory plan is the “white paper” as it is referred to by the administration. In essence, it aims to provide the Federal Reserve more oversight power when it comes to dealing with the largest players. The government wants the Fed to gain the authority to break-up important companies – similar to how FDIC operates failed banks – once it becomes a threat to the overall economy. In addition, the Obama administration also wants to create a new watchdog that will scrutinize consumer products more thoroughly.

Certain lawmakers want to consolidate power to a single regulatory agency but the president does not intend to pursue this route. Instead, the administration will allow several agencies to continue their operations. In fact, the only agency that will be abolished is the Office of Thrift Supervision. If the proposed consumer agency pushes through, the number of oversight institutions in the financial industry will remain the same.

Treasury Secretary Timothy Geithner is scheduled to appear before the Senate and House panels. Many expect him to be criticized and called to answer how regulators can create a process that will not simply bailout finance companies on the brink of collapse. Lawmakers also want more responsibility on the part of the banks. The issue of giving more authority to the Federal Reserve will also be a thorny issue given its past failures and culture of secrecy.

Due to the financial meltdown in Wall Street, the Obama administration has decided to bail-out troubled banks using taxpayer money. As can be expected, the public was outraged by this development. The common consensus during the time the TARP program was being developed was, “why should we pay for the banks’ mistakes?” Well, the bailout actually came with a long list of strings attached. One of the most notable ones was the limit imposed on executive compensation.

Over the course of these past few months, we’ve seen the fast recovery of some of the nation’s biggest banks. And how each of these banks has struggled to raise capital in an effort to pay back the TARP money they received. Behind all this is a very strong motive: bank executives want to be in control of their compensation and company strategy. This week’s round-up is composed of blogs that had talked about banking executives’ compensation, its importance, and what it will mean for the average person.

Mark @ CS Monitor talked about how the government plans to restructure how bank executives are paid. His post titled “Obama Looks of Overhaul Executive Pay” talked about the proposed “say on pay” legislation. It will essentially give shareholders a bigger voice in how much the board and other top management officials will be paid. The initiative is designed to minimize risky behavior by tying executive compensation to behavior.

Gary @ Uncommon Common Sense wrote an in-depth post titled “America’s Big Business: When you Commit a Crime” on his blog. The article essentially discussed how bank executives “knew better” than to take the risks they were taking prior to the financial crisis. But they were operating in an industry that encourages high risk to increase they pay.

Andrew @ Harvard Law School Blog provides a comprehensive look as to why bank executives behaved the way they do in the industry. Titled “Compensation Structure and Systematic Analysis” dealt with pay arrangement that encouraged extreme risk taking to product pay incentives. In addition, the article discussed how short term focus distorted long term planning on the part of the banks.