Obama Urges Sweeping Overhaul of Financial Regulation
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Speaking at Federal Hall in downtown Manhattan, Mr. Obama urged those in Congress to pass a plan to dramatically reform the nation’s financial regulatory system by the end of the year. He also urged those on Wall Street to take greater responsibility — not only to embrace reform of financial rules, but to overhaul the financial industry’s culture of rewarding recklessness.
After a summer of intense national debate over healthcare reform, the White House hopes to refocus attention this week on the continued need to reform the financial sector’s rulebook. The administration also hopes to wind down many of the emergency lending initiatives put in place over the past 12 months.
Mr. Obama touted the steps taken so far to stabilize the economy and suggested that the administration’s recovery plan has helped the economy turn a corner. “While there continues to be a need for government involvement to stabilize the financial system, that necessity is waning,” Mr. Obama said. “Banks have repaid more than $70 billion, and in those cases where the government’s stake has been sold completely, taxpayers have actually earned a 17-percent return on their investment.”
In outlining the administration’s proposal for reform, Mr. Obama cited three key aspects of the plan. First, he called for new rules to protect consumers and the creation of a Consumer Financial Protection Agency, which will be charged with protecting consumers from predatory financial products. The agency will have the “power to ensure that consumers get information that is clear and concise, and to prevent the worst kinds of abuses.”
Mr. Obama also cited the need to “close the loopholes that were at the heart of the crisis” by empowering the Federal Reserve with greater power to regulate financial firms that pose a systemic risk to the financial system. He also called for the creation of an oversight council to police gaps in regulation and to share information among different regulators.
Finally, Mr. Obama called for coordinated global reform of financial oversight. “We know that abuses in financial markets, anywhere can have an impact everywhere,” Mr. Obama said. “As the United States is aggressively reforming our regulatory system, we will be working to ensure that the rest of the world does the same.”
How to best harmonize financial regulatory reform will be a major topic of discussion at the G20 meeting in Pittsburgh on Sept. 24-25.
In June, the administration unveiled major proposals to overhaul the nation’s financial regulatory system, including new oversight powers for the Federal Reserve, new ways for the government to dismantle failed companies, and a regulator to oversee financial products for consumers.
But healthcare legislation has largely overshadowed the president’s economic reform agenda for the past several months. As a result, administration officials, including Treasury Secretary Timothy Geithner and economic advisor Lawrence Summers, have increasingly called for greater urgency in addressing reform over the past several weeks.
On Monday, the Treasury Department releases a 33-page report detailing steps it plans to take called “The Next Phase.”
President Obama’s speech comes nearly one year after Lehman Brothers filed for bankruptcy, helping to set off a global financial crisis that has led to more than $1.6 trillion in losses by financial institutions and unprecedented government interventions in the banking, insurance, and auto industries.