By Renuka Rayasam, Associate Editor June 17, 2009 The first shots over the bow in what will be a contentious fight over financial regulation reform were fired Tuesday evening. The administration kicked off the battle, which will last into the fall, with a series of televised appearances and happy hour teleconference press briefings. President Obama and his economic team wanted to define the coming raucous debates on the overhaul of the nation's financial system, which will be as much about style as substance.The administration has the tricky task of soothing populist outrage over how much the federal government had to help banks when the meltdown occurred and reforming an industry that is still regaining its financial footing. But the banking lobby won't back away from a fight. It will take plenty of the White House's political will to battle banks and financial firms that will spend millions of dollars to defeat unfavorable measures. The initial plan already reveals some of the administration's concessions, such as dropping earlier pledges to regulate insurance federally and leaving oversight of the vast and secretive hedge fund industry to the Securities and Exchange Commission, as opposed to passing a whole new set of restrictive laws. The plan also pushes back badly needed overhauls of failed mortgage giants Fannie Mae and Freddie Mac until at least 2011. Compromises now on the part of the White House means that some of the most important pieces of the President's package will have a better chance at becoming reality. For example, the administration did not propose doing away with the current patchwork system of banking regulators. The biggest proposed change in this area is to merge the Office of Thrift Supervision with the Office of the Comptroller of the Currency and keep the National Credit Union Administration and the Federal Deposit Insurance Corporation. This change would make it harder for banks to "regulator shop," and select the regulator with the lightest touch. But the Obama plan doesn't get end the system of banks paying the very regulators that watch over them and in which the regulators and those who work in the industry move back and forth between the two. To the dismay of many who think regulators were asleep at the switch, the staffers responsible for overseeing AIG and other alleged villains of the past year probably will stick around. Look at history as a guide. The OTS was created in 1989 to replace the Federal Home Loan Bank Board after the savings and loan crisis, but the agency kept the same employees and functions, making the creation of the agency little more than a reform of semantics.And only in his dreams could Alexander Hamilton have envisioned the expanded powers of the Federal Reserve under the Obama plan. The Fed would assume broad responsibility for oversight of all financial firms and their activities, winning authority to impose rules on the largest companies. In a bow to those worried about giving the central bank too much power, the Fed would have to work with other agencies, especially before intervening in financial rescues. For example, the Fed would have to request written permission from the Treasury Department before lending a failing firm large sums of the government's money. Advertisement Perhaps an even bigger change: the plan would take away Fed authority to oversee consumer protection. Obama proposes creating a Consumer Financial Protection Agency, which would have the powers that the Fed has now. But the American Bankers' Association, among other industry groups, is hellbent on preventing this change. Even with these early concessions and others that might come later, in the end, reform will pass by year-end. The upshot for financial world players, especially banks and insurance companies, is that Uncle Sam's presence will be felt more than before for a long time to come. It will force them to think more conservatively about risk-taking. But whether the reform will prevent future crises will be the true test, one that will take decades to determine.