Reporting
from Washington -- President Obama today unveiled what he described as
a "sweeping overhaul" of the rules governing the financial system,
saying bold action was needed to repair the regulatory failures that
were a major factor in the nation's economic collapse.
"It is an indisputable fact that 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," Obama said during a White House speech.
"A culture of irresponsibility took root from Wall Street to Washington
to Main Street. And a regulatory regime basically crafted in the wake
of a 20th century economic crisis -- the Great Depression -- was
overwhelmed by the speed, scope and sophistication of a 21st century
global economy," he said.
To solve those issues and build a foundation for economic recovery,
Obama has proposed the most extensive revision of the financial
regulatory system since the 1930s.
The new plan calls for tough new requirements for companies whose
failure would threaten the economy, and new oversight over complex
financial derivatives. Obama also proposed the creation of two new
agencies -- one to regulate all federally chartered banks and the other
to protect consumers as they navigate their way through the sometimes
complex maze of financial products.
"We know that there were many who took out loans they knew they
couldn't afford. But there were also millions of Americans who signed
contracts they didn't always understand offered by lenders who didn't
always tell the truth," Obama said. "The most unfair practices will be
banned. Those ridiculous contracts with pages of fine print that no one
can figure out, those things will be a thing of the past. And
enforcement will be the rule, not the exception."
Obama proposed giving the Federal Reserve broad new powers to oversee
large firms, such as insurance companies, that it does not regulate
directly. Those companies would be required to keep more capital on
hand to resist economic shocks.
"If you can pose a great risk, that means you have a great responsibility," Obama said.
U.S. officials would have the authority to seize and dismantle these
companies if they are in danger of failing to avoid a repeat of the
chaotic government response last fall when insurance giant American
International Group Inc. teetered near bankruptcy and required a
federal bailout.
In addition, the administration wants to create a Financial Services
Oversight Council, headed by the Treasury secretary, that would try to
fill regulatory gaps, coordinate policy and identify emerging risks to
the economy.
"With the reforms we're proposing today, we seek to put in place rules
that will allow our markets to promote innovation while discouraging
abuse," Obama said. "We want a system that works for businesses and
consumers."
The plan has been in the works for months and is a top priority of the
Obama administration. The president is pushing Congress to approve it
by the end of the year.
At the White House for the announcement were key lawmakers who must
shepherd the plan through Congress, including House Financial Services
Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee
Chairman Chris Dodd (D-Conn.)
Before unveiling the plan, Obama met at the White House with his top
economic advisors and major financial regulators, including Federal
Reserve Chairman Ben S. Bernanke, Securities and Exchange Commission
Chairwoman Mary Schapiro and Federal Deposit Insurance Corp. Chairwoman
Sheila Bair.
The most controversial part of the plan could be the creation of a
Consumer Financial Protection Agency. It would have authority to enact
new rules over credit cards, mortgages and other consumer products, and
levy penalties for companies that violate them. The agency would assume
responsibilities now scattered across several agencies, with its main
focus on protecting consumers, Obama said.
The agencies that now share those responsibilities, including the
Federal Reserve, are expected to fight against the loss of their power.
Indeed, the Securities and Exchange Commission appears to have won a
turf battle by preserving its oversight of mutual funds, one of the
most popular consumer financial products.
Business groups are likely to lobby against various aspects of the
plan, with the support of many Republicans who argue that the measures
needlessly expand government oversight.
The opposition began before Obama's speech and after the administration released major components of the plan Tuesday.
The U.S. Chamber of Commerce announced it was "disappointed" with the
plan. And the American Bankers Assn. slammed it for being "vast and
controversial" and complained that it "needlessly rips apart all the
existing regulatory agencies."
But consumer groups were thrilled with the plan.
"It's a very good step forward and it's got most of what we want," said
Ed Mierzwinski, consumer program director at the U.S. Public Interest
Research Group in Washington.
