Obama to Outline Regulation Changes to Avoid Repeat of Crisis
By Hans Nichols
March 22 (Bloomberg) The Obama administration will this week outline regulatory changes aimed at avoiding a repeat of the financial crisis that’s crippled the banking system and pushed the U.S. into the deepest recession since 1982.
The proposals will address the risks that remain in financial regulation, an administration official said, including the need for an agency to have the power to resolve a breakdown at a major financial institution. Federal Reserve Chairman Ben S. Bernanke two weeks ago called for regulators to be given the authority to seize such firms, in the way the Federal Deposit Insurance Corp. already has for deposit-taking institutions.
Officials favor giving the Fed greater responsibility for managing risk across the financial system as was proposed almost a year ago by former Treasury secretary Henry Paulson, support for which is waning in Congress. President Barack Obama may also subject executive pay to greater scrutiny, the New York Times reported. An administration official denied that curbing compensation will be a major focus of the regulatory plan.
“There’s still a need for a systemic-risk regulator,” Representative Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said on March 20. “The argument for the Fed alone has lost a lot of political support. I think that’s now got to be re-looked at.”
Treasury Secretary Timothy Geithner will testify before Frank’s committee on March 26 as Obama prepares to travel to London for a summit of the Group of 20 industrial and developing nations.
Obama has said that the meeting must deal with how to prevent further crises like the current financial meltdown that began almost two years ago with the collapse of the market for subprime mortgages.
American banks have suffered more than $800 billion in writedowns and credit losses since then. The credit contraction that followed dragged first the U.S., and then Europe and Japan, into recession. A surge in unemployment and collapse in house prices has added to bad loans and further discouraged banks from lending.
The crisis also pushed the U.S. government into pouring hundreds of billions of dollars into financial institutions, including Citigroup Inc., Bank of America Corp. and American International Group Inc.
Like the White House, Congress is trying to overhaul U.S. financial regulations and agencies that lawmakers have faulted for lax oversight. Frank, who is playing a lead role in the redesign, has been pushing to expand the Fed’s authority.