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| President Barack Obama, accompanied by House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., left, and Senate Banking Committee Chairman Sen. Christopher Dodd, D-Conn., makes comments in the Diplomatic Reception Room of the White House in Washington, Wednesday, Feb. 25, 2009, after a economic meeting. |
WASHINGTON (AP) -- After devoting money and time in search of a rescue for the ailing banking sector, President Barack Obama on Wednesday demanded tough new regulations to keep financial institutions in check and avoid future Wall Street meltdowns.
Obama pressed key lawmakers to overhaul the nation's financial regulatory scheme to restore "accountability, transparency and trust in our financial markets." He specifically called for a system that would monitor the risks that institutions can take.
"We can no longer sustain 21st century markets with 20th century regulation," Obama said after meeting with Treasury Secretary Timothy Geithner and the chairmen and top Republicans of the two House and Senate committees charged with writing new regulatory legislation.
Obama leveled a broad indictment of the industry, saying the current financial crisis occurred when "Wall Street wrongly presumed the markets would continuously rise and traded in complex financial products without fully evaluating their risks." But he also blamed government regulators for not adequately protecting consumers.
In calling for a sweeping regulatory change, Obama is providing ballast to his still unfinished effort to shore up the ailing industry. As such, he is taking both a policy and a political step designed to assure the public that bailing out banks is not his only prescription for the industry.
Members of Congress, echoing public sentiment, have been wary, if not hostile, toward the $700 billion the government is spending to infuse capital into banks in hope of loosening credit. In his address to a joint session of Congress Tuesday night, Obama warned that the rescue effort could cost even more.
The president offered no specific regulatory framework on Wednesday, but called for a series of "core principles." Among them are consumer protections, accountability for executives and a regulatory plan that covers a broad series of financial transactions that have escaped regulation in the past.
"Let me be clear: The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism," Obama said. "Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong."
An industry lobbyist, Scott Talbott, said most of Obama's principles were broad enough to not raise alarms. But he said his call to monitor the scale and scope of risk and to strengthen supervision of financial products was potentially troubling.
"You have to allow for appropriate risk," said Talbott, the chief lobbyist for the Financial Services Roundtable. "You can overprotect consumers to the point of stifling ingenuity by regulating a product to death. That would limit the availability of products to the consumer."
An administration official said Obama wants Congress to work on the regulatory overhaul in the next several weeks, before April's meeting of the world's 20 major economies. The official spoke on the condition of anonymity to provide context to the president's remarks.
Among those at Wednesday's meeting at the White House was House Financial Services Committee Chairman Barney Frank. The Massachusetts Democrat has already begun working on legislation that would establish a regulator to oversee the kind of systemic risks that led to the market free fall last year.
Frank has proposed that the task be placed in the hands of the Federal Reserve. In the Senate, the chairman of the Banking Committee, Christopher Dodd of Connecticut, has been cooler to the idea of placing that oversight with the Fed. Dodd also attended Wednesday's White House session.
"I'd say your plate is full to put it mildly," Dodd told Fed chairman Ben Bernanke during a hearing Tuesday. "When you keep asking an agency to take on more and more and more it becomes less and less and less likely that the agency will succeed at any of it."
The House is moving on two tracks - first on the systemic risk regulator and then on a more detailed regulatory regime. House officials don't expect to complete the broader task until late spring or early summer.
Among those who have been working with Frank and the White House are a coalition of centrist Democrats who sit on the Financial Services Committee. These New Democrats, whose members have discussed regulatory legislation with White House chief of staff Rahm Emanuel, are scheduled to announce their own regulatory principles on Thursday.
The centrists - in a list of proposals far more extensive than Obama's - support a systemic risk regulator and would also place prohibitions on excessive debt leverage, require lenders to have a stake in loans they underwrite, and curtail incentives for financial executive to take excessive risks.
"We will not always see eye to eye in this work," Obama cautioned in his remarks.
