Obama to propose strict new regulation of financial industry
The Obama administration is scheduled to propose the most significant
new regulation of the financial industry since the Great Depression,
including a new watchdog agency to look out for consumers' interests.
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Barack Obama |
Under the plan, expected to be released Wednesday, the government
would have new powers to seize key companies - such as insurance giant
American International Group Inc. - whose failure jeopardizes the
financial system. Currently, the government's authority to seize
companies is mostly limited to banks.
Critics
But critics say the easing of the financial crisis that gripped the
country last year appears to have reduced the momentum for some of the
most far-reaching proposals, such as merging several banking regulatory
agencies.
They're also concerned that the proposed agency whose mission would
be to protect consumers against financial misconduct wouldn't have the
authority to do so for a wide-enough range of products.
"This is too little, too late," said Rep. Brad Sherman (D-Sherman
Oaks), based on his understanding of the plan. "It's going to be way
less than it should be."
On Monday, Obama administration officials sketched the outlines of
the plan the president is to unveil Wednesday. They said it would seek
to reduce gaps in regulatory oversight, rein in the use of
mortgage-backed securities and other complex derivatives, reduce
incentives for companies to take excessive risk and give the government
new power to quickly intervene during any future crises.
Regulatory body
"We had a system that proved too unstable, too fragile. Those are
things we have to change," Treasury Secretary Timothy F. Geithner said
Monday at an economic forum in New York.
The administration also is expected to propose creation of a
regulatory body for financial products marketed to consumers, such as
credit cards, whose oversight is now spread over several agencies.
In addition, the administration wants to impose regulation over the
market for derivatives - the murky financial contracts used to hedge
risky investments - including new reporting and disclosure requirements.
Institutions that originate loans would be required to retain 5% of the
credit risk when the loans are turned into securities.
All the proposals would have to be approved by Congress in a process
the administration hopes to complete by the end of the year.
In the heat of the financial crisis last year, there were widespread
calls for the government to merge several banking regulatory agencies
into one to reduce gaps in oversight and stop what might be called
"regulator shopping."
Thrift Supervision
For example, AIG was able to choose the Office of Thrift Supervision
for its non-insurance financial business when it bought a small savings
and loan in the late 1990s. That office has been viewed as a weaker
regulator, and was strongly criticized in a government report this year
for ignoring repeated warning signs about Pasadena-based IndyMac Bancorp
before the thrift's failure last summer.
"I'm concerned that people think we've stepped back from the brink of
disaster and so they're not as committed to seeing real meaningful
reforms adopted," said Barbara Roper, director of investor protection
for the Consumer Federation of America.
For their part, business groups have worried that the Obama
administration might go too far in responding to the financial crisis
with new regulations, stifling the market and hurting financial firms at
a time when the economy is still weak.
Consumer protection
They have been pushing back against some of the proposals floated by
the administration, lawmakers and consumer advocates, such as a consumer
protection agency for financial products.
But Scott Talbott, chief lobbyist for the Financial Services
Roundtable, which represents large financial institutions, said there
was still a strong impetus in Washington for regulatory reform and
dismissed the suggestion that the Obama administration had missed its
chance to implement it.
From the Los Angeles Times |
