US financial sector to shrink

WASHINGTON - THE financial sector will make up a smaller part of the US economy in the future as new regulations clamp down on 'massive risk-taking,' President Barack Obama said in an interview published on Saturday.

President Obama, whose young administration has spearheaded a raft of reforms in the banking sector as part of efforts to tackle the financial crisis, said the industry's role in the United States would look different at the end of the current recession.

President Obama said some of the job-seekers who may normally have gone to the financial sector would shift to other areas of the economy, such as engineering.

The Obama administration in March proposed sweeping reforms to curb risk-taking on Wall Street and close regulatory gaps to prevent the kind of excesses that led to the worst financial crisis since the 1930s Great Depression.

The president said in the interview that better regulation would help restore confidence in the US financial system.

President Obama expressed optimism that the market for securitised products would pick up, though he said that could take time.

The Federal Reserve, with taxpayer capital from the US Treasury, is supporting consumer and real estate lending markets through a loan facility that could reach US $1 trillion (S$1.5 trillion).

Holders of existing asset-backed and commercial mortgage-backed securities can get loans from the Fed by putting up their securities as collateral.

The facility aims to unclog frozen credit markets and jumpstart securitisation. Part of President Obama's regulatory reforms include the creation of a new 'systemic risk regulator' with broad powers to seize large non-bank financial firms, such as insurers, hedge funds or private equity companies, if they are deemed to threaten the stability of the financial system.

President Obama also said financial rules should be crafted according to what an institution actually does to avoid a regulatory gap in areas such as commercial and investment banking. -- REUTERS