Mr. Obama blamed the crisis on “a culture of irresponsibility” that he said had taken root from Wall Street to Washington to Main Street. He said regulations crafted to deal with the depression of the 1930s had been “overwhelmed by the speed, scope and sophistication of a 21st century global economy.”
The plan would put the Federal Reserve in charge of monitoring the largest financial firms in the hope that holding one agency accountable will prevent a repeat of the banking and capital markets crisis, Reuters reported.
The administration’s plans also would create a Consumer Financial Protection Agency to guard against credit and other abuses, and abolish the Office of Thrift Supervision.
“Mortgage brokers will be held to higher standards, exotic mortgages that hide exploding costs will no longer be the norm, home mortgage disclosures will be reasonable, clearly written, and concise,” Mr. Obama said.
Listen to his full statement here:
The proposal, laid out in an 88-page government document, seeks additional protections for investors, including greater disclosure by hedge funds, regulation of credit default swaps and over-the-counter derivatives that used to operate outside government oversight, and new conditions on brokers and originators of asset-backed securities.
Under the plan, any large, interconnected firm that the government wants to take over and break up could be forced into government seizure by the Treasury Department if certain conditions are met, according to the Wall Street Journal.
Sen. Chuck Schumer, D-N.Y., called the new consumer products agency “the cornerstone of regulatory reform.” The Federal Reserve and other banking regulators, he said, were too focused on the “safety and soundness” of the institutions they oversee, and “did not do a very good job of protecting consumers,” quoted the AP.
Rep. Bill Delahunt, D-Mass., who has helped write a consumer protection bill in the House, said, according to the AP: “Here we are just beginning to extract ourselves from this mess that was on the cusp of total collapse, and the banks don’t want further regulations. Give me a break.”
Senate Banking Committee Chairman Christopher Dodd, meanwhile, has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks. However, he is a strong proponent of a consumer protection agency and is likely to champion that component of the president’s plan, reported the AP.