Just days before the Oval Office announced its financial reform plan, US Treasury Secretary Timothy Geithner and White House National Economic Council Director Lawrence Summers wrote in The New York Times: "We will lead the effort to improve regulation and supervision around the world."

What does the plan mean for the US? And what will it mean for China?

"One of the most significant contributors to our economic downturn was an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess," US President Barack Obama has said.

The US administration's financial reforms hope to prevent the regulatory and supervisory lapses that contributed to the global financial crisis. The plan expands financial regulation in several ways. It seeks to create an umbrella "Financial Services Oversight Council", chaired by the Treasury, a new "National Bank Supervisor" for all federally chartered depository institutions, a new "Consumer Financial Protection Agency", and even a new "Office of National Insurance" to enhance its powers to oversee the insurance sector.

The Federal Reserve would be responsible to oversee the financial market infrastructure. In addition, financial regulation would be deepened in critical areas. Supervisory responsibility for all banking and non-banking firms that pose systemic risks would be assigned to the Fed.

Finally, the plan seeks to address the problem of banking institutions that are "too big to fail". Whenever the stability of the financial system is at risk, it would allow for orderly resolution of large bank holding companies.

By 2007, more than half of America's banking was being handled by largely unregulated institutions. It is this parallel financial system (which some have termed "shadow banking") that the plan seeks to regulate.

Still, the suggested reforms are unlikely to resolve systemic problems. Lenders, for instance, will be required to hold on to 5 percent of their loans, which is hardly sufficient to deter risky lending.

The plan highlights "compensation practices" as a key cause of the crisis, but does not really address those practices. It does not offer much in terms of reforming the rating agencies either. Besides, many senators are not willing to accept the idea of expanding the Fed's powers to enable it to regulate risk across the financial system.

At the end of the day, the plan regards the financial sector as basically sound. After hundreds of billions of dollars have been poured in to bail out the banks, it is difficult to avoid the impression that there may be a systemic problem.

By a wide agreement, Obama's administration has moved fast on multiple fronts and with refreshing directness ever since it assumed office. Clearly, the White House is trying to turn around a period of drift, decline and disastrous mistakes.

Since January, the Obama administration has fought the problems of US banks, and auto giants GM and Chrysler. Now, it is beginning to deal with financial reforms and health services. Conservative critics will argue that the administration is going "too far", while liberals will say it is not going "far enough". But that's hardly new.

What is far more important is that the administration's early track record reflects a pattern that may backfire in the coming months. With each major issue, it seems that the administration has a clear vision of what has gone wrong.

Indeed, Obama's eloquent speeches often highlight the central problems and provide a blunt diagnosis.

In each case, too, so it seems, the administration's piecemeal recipe of what to do about the problems is less persuasive. The plans tend to punt on the question of how to avoid the disastrous mistakes of the past.

As long as Obama can retain his current job-approval rating of 63 percent, he will have the backing of the Democrats and independents. In the past quarter, however, his rating among Republicans has almost halved to 23 percent. This leads one to believe that bridging the partisan divide - the president's initial objective - may no longer be viable.

While a majority of Americans continue to approve Obama's handling of his job, foreign policy and the threat of terrorism, the approval ratings are lower for his handling of the economy, healthcare and the auto industry, according to the latest New York Times/CBS News poll.

Most importantly, a deepening gap exists between Obama's overall standing and the perceived success of his key initiatives. Today, the majority of Americans believe his policies have had no effect on improving the economy or even worsened it.

For now, Obama's political capital rests on faith in his leadership rather than concrete results. In the coming months, however, the president's job approval will be increasingly evaluated in terms of actionable results - on the US economy in general, and the soaring budget deficit and public debt in particular.

Until recently, Washington has readily offered pure laissez-faire market doctrines to China and other large emerging economies, as well as developing countries as recipes for success. Yet, now it seems indisputable that if China's financial sector had actually followed those guidelines, Chinese banks would be in a turmoil today.

The right conclusion is not that the forces of deregulation, privatization and liberalization are inherently flawed. On the contrary, it is these forces that, along with China's economic reforms and international opening, have contributed to the lifting of hundreds of millions from abject poverty.

The right conclusion is rather that, in order to do their magic, the forces of deregulation, privatization and liberalization require adequate regulation and supervision.

If Obama's reforms go too far (which is unlikely), over-regulation will suppress the rejuvenation of economic growth and world trade. If the reforms fall too short (which is more likely), they will contribute to uncertainty and volatility, which will hamper global growth and trade.

Even though the crisis has been rattling the globalized world, the White House's financial reform plan does not have the terms "world" or "global". It offers food for thought worldwide, but hardly represents a leading effort to improve regulation and supervision "around the world".

Obama's plan is focused primarily on the US financial sector - not on a world that is becoming increasingly multi-polar.

The author is research director of International Business at the India, China and America Institute.

(China Daily 06/24/2009 page9)