President Obama named modernizing the financial services regulatory structure a top priority Wednesday but offered few details other than a list of ideals including preventing systemic risk and a hint that the Federal Reserve Board might get that role.
"There are certain core principles that I believe must shape any proposal for reform and these are the principles that will guide our work," the president said after a White House meeting on the topic with his top economic advisors and the House and Senate banking committee leaders.
"Financial institutions that pose serious risks, systemic risks, to our market should be subject to serious oversight by the government," he said. "And here's why: when the Federal Reserve steps in as a lender of last resort, which it's had to do repeatedly since this financial crisis began, it's providing an insurance policy underwritten by the American taxpayer.
The taxpayer should be assured that the Fed thoroughly understands the institutions that it is insuring and actively monitoring them to make sure they are not taking risks that will cost taxpayers in the long run."
The president made clear that crafting legislation is just beginning and that he doesn't expect policymakers will "always see eye to eye" in the weeks and months ahead as they work to fill in the details.
The president reiterated many of the basic ideals policymakers have been discussing for months.
He said reform should be comprehensive, cut across financial markets, and reach globally as well. It should not stifle innovation, but it must improve transparency, increase accountability, and create uniform supervision.
House Financial Services Committee Chairman Barney Frank has advocated enhancing the Fed's role to protect the system from risk and has supported the Fed's request that it be granted authority to unwind major non-bank institutions like Bear Stearns or Lehman Brothers.
Senate Banking Committee Chairman Chris Dodd said Wednesday at a credit union convention before the White House meeting that he remains "agnostic" about the Fed's role, citing concerns over its handling of consumer protection.
Sen. Richard Shelby, the Banking Committee's top Republican, who participated in the White House meeting, has also expressed concern about extending the Fed's reach.
In an interview after President Obama's address to Congress Tuesday night he said, "The Fed was the bank regulator at all the big holding companies. Obviously it didn't do a very good job."
The Alabama Republican acknowledged Rep. Frank's interest in bolstering the Fed's role but said he believes the Banking Committee has a different view.
"I think Sen. Dodd and I both … we're not sure the Fed's got that great a record on overseeing things," he said.
More discussion on the topic is expected Thursday when Rep. Melissa Bean, who co-chairs the New Democrat Coalition's Financial Services Task Force, and other moderate Democrats unveil their proposal for redrawing the regulatory map.