The President's Plan To Overhaul Financial Regulation
Wednesday, June 17, 2009SUSIE GHARIB: President Obama unveiled today an ambitious plan that changes the way the nation's financial system is regulated. The president said his overhaul is quote, a transformation on a scale not seen since the reforms that followed the great depression. He said the reforms are necessary to make sure another credit crisis does not happen again. The much-anticipated proposal gives vast new powers to the Federal Reserve and U.S. Treasury and includes protections for American consumers and investors. The president also said he wanted to avoid what he called schemes built on a pile of sand. Stephanie Dhue has details.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The sweeping proposal unveiled by President Obama touches every corner of the financial industry. The president says his plan will promote innovation and discourage abuse by tightening regulation.
OBAMA: The absence of a working regulatory regime over many parts of the financial system and over the system as a whole led us to near catastrophe. We shouldn't forget that. We don't want to stifle innovation. But I'm convinced that by setting out clear rules of the road and ensuring transparency and fair dealing, we will actually promote a more vibrant market.
DHUE: The plan puts the Federal Reserve in charge of supervising financial firms that are so large, leveraged and interconnected they are too big to fail. Financial institutions would have to put more money in reserves to cover potential losses. It puts new regulation on credit default swaps and other derivatives and sets up a new consumer protection agency to oversee financial products. Analyst Jaret Seiberg says the proposal is a mixed bag for banks.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: There's clearly an incentive in this bill to avoid becoming one of these financial behemoths, because they are going to threaten you with higher capital levels and more restrictions. But at the same time, the legislation makes it more expensive to operate a bank and that's going to force consolidation among the smaller players as everyone looks for economies of scale.
DHUE: But it's clear this proposal is just the beginning. Senate Banking Committee Chairman Chris Dodd isn't sold on making the Fed the key regulator for big financial firms.
SENATOR CHRIS DODD (D) CONNECTICUT: There's not a lot of confidence in the Fed at this point and I'm stating the obvious over what's happened over the last number of years. So I hear that expressed by my, members of my committee, both Democrats and Republicans who are looking for an alternative. But I would tell you at this juncture there's been no decision.
DHUE: Another flashpoint will be the consumer financial protection agency. Consumer advocate Lauren Saunders says the agency must be truly independent.
LAUREN SAUNDERS, MANAGING ATTORNEY, NATIONAL CONSUMER LAW CENTER: We can't have people who are more concerned about bank profits being the ones who are also charged with looking out for fairness and safety for consumers. It just doesn't work together.
DHUE: But industry lobbyist Scott Talbott says creating a new regulator would be a mistake.
SCOTT TALBOTT, SR. VP GOV'T AFFAIRS, FINANCIAL SERVICES ROUNDTABLE: You're separating the regulation of the bank from the regulation of the products, so each of the two regulators under that scenario would only have half of the information, which actually weakens the system.
DHUE: The administration wants to get the reforms through Congress this year. But analysts predict it will take a lot longer than six months for lawmakers to agree on the details. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
