As the Obama Administration released its proposal to make the most sweeping changes in bank regulation in 75 years, Wall Street differed on the effect of the overhaul plan.

The administration’s proposal, which released Wednesday, comes after a year of shocks on Wall Street and a credit crunch that contributed to the worst U.S. recession in half a century.

“Regulatory reform must protect investors, close regulatory gaps and enhance market transparency, while at the same time continuing to encourage the spirit of innovation that has fueled decades of economic growth, produced new products and services and created jobs,” said Niederauer.

“Our regulatory system is vastly outdated, and we are encouraged by the Administration’s enthusiasm for reform and welcome the opportunity to contribute to this truly important initiative,” said the CEO.

Under the proposal, much of which will be subjected to approval by Congress, the government will make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system. Hedge funds, derivatives and consumer mortgages, will be all under the supervision by the government.

Bob Greifeld, chief executive officer of the NASDAQ OMX Group, a major competitor of NYSE Euronext, also praised the new plan.

“The administration has been diligent and comprehensive in its approach to financial regulatory reform,” he said. “With the complexity and interconnectedness of markets today, the administration has recognized that details matter and global cooperation matters. The proposal affirms important principles to protect the American investing public while offering pragmatic solutions for updating and improving our financial system.”

“We strongly support the Administration’s dedication to embracing full transparency in the Over-the-Counter markets. NASDAQ OMX believes in better, smarter regulation as opposed to more regulation, and we look forward to the administrations’ efforts to reconcile regulatory gaps and redundancy in financial regulation,” said Greifeld.

However, some experts doubt the massive increase in government control over the financial system and the economy could hurt the financial industry.

“The President’s economic team is clearly focused on the big picture problem, how to identify systemic risk and how to monitor and regulate the industry, to avoid a repeat of the disasters of the past year,” said Mr. Lynyak, a former FDIC Honors Fellow who currently sits on the American Bar Association’s Banking Law Committee and who formerly chaired the ABA’s subcommittee on FDIC Receiverships and Conservatorships.

“However, the plan must give someone both the authority to decide that we have a systemic risk threatening the system and the power to pull the emergency brake on a runaway economic freight train,” he added. “If the proposal does not clearly delegate this power and authority, it will simply be adding another layer of bureaucracy to an crowded regulatory framework.”

“The financial industry will retain the same potential dangers of systemic risks, with no appointed authority to stop the train from crashing again,” said Lynyak. “There are a number of open-ended questions that the proposal has to protect against.”

“Will the public and Congress restrain themselves from punishing individuals they hold responsible for derailing the economy? Will Americans be able to live with the short-term pain of having the economic brake pulled in order to prevent a system-wide wreck further down the tracks?”Lynyak asked.

Analysts are worrying that U.S. banks could become less competitive and less profitable from President Obama’s proposed financial overhaul.

“These regulations are so sweeping, so comprehensive and so expensive there’s no question about the fact that they will lower the profitability of the industry,” said Richard Bove, banking analyst with Rochdale Securities.

The S&P downgrade hit the financial sector Wednesday, sending the KBW Bank Index down more than 5 percent at one point before paring some of its losses.

“We also don’t know if any of the new regulations from the Obama White House and Treasury will deal with the moral-hazard question of ’too big to fail’. There will be new resolution authority to close down banks, but whether that will apply to the big banks remains to be seen,” said Larry Kudlow, a CNBC anchor in his comment.

VietNamNet/Xinhuanet