WASHINGTON — President Obama made a personal pitch Wednesday for the need for regulatory reform, outlining a series of steps his administration would like to take.
In a speech in the afternoon, the President said the financial crisis was due to a "failure of the entire system," and warned that without changes, another crisis could occur.
"The events of the past few years offer amply testimony for the need to make significant changes," Obama said, according to prepared remarks. "The absence of a working regulatory regime over many parts of the financial system — and over the system as a whole — led us to near catastrophe."
Obama's proposal, the details of which were contained in an 85-page white paper circulated Tuesday night, would give the Federal Reserve Board the power to oversee all systemically important companies, proposes the creation of a new consumer protection agency, and would give the government power to seize and unwind large financial companies.
"One of the reasons this crisis could take place is that while many agencies and regulators were responsible for overseeing individual financial firms and their subsidiaries, no one was responsible for protecting the whole system from the kinds of risks that tied these firms to one another," Obama said.
Though many in Congress favor a regulatory council to oversee systemic risk, Obama instead said that power should go to the Fed "so that lines of responsibility and accountability are clear."
He said he would also create an oversight council to "bring together regulators from across markets to coordinate and share information; to identify gaps in regulation; and to tackle issues that don't fit neatly in an organizational chart."
Critics have already noted, however, that the oversight council lacks much power, and cannot overrule decisions of the Fed.
Obama also touted proposed resolution authority, saying the lack of a clear process for unwinding large firms led to "emergency meetings in the middle of the night."
"We should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution or to support the company with taxpayer money," he said. "That is unacceptable. There is too much at stake."
The administration's proposal would give the Federal Deposit Insurance Corp. the power to resolve bank holding companies. For systemically important nonbanks, the Treasury would decide how to resolve such firms.
Obama also said the creation of a consumer protection agency was critical, and said it would help make credit offerings more understandable for everyday borrowers.
"This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand," the President said. "Consumers will be provided information that is simple, transparent and accurate. You'll be able to compare products and see what is best for you. The most unfair practices will be banned… and enforcement will be the rule, not the exception."
The consumer protection agency would have the power to write rules for banks and nonbanks, and examine and enforce those rules. Obama said the new agency would be able to "set new rules for home mortgage lending, so that the bad practices that led to the home mortgage crisis will be stamped out."
"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," Obama said.
Obama also said it was important to close the gaps in the regulatory system, arguing that companies were allowed to shop for the weakest regulator.
"That is why, as part of these reforms, we will dismantle the Office of Thrift Supervision and close loopholes that have allowed important institutions to cherry-pick among banking rules," Obama said. "We will offer only one federal banking charter, regulated by a strengthened federal supervisor. We'll raise capital requirements for all depository institutions."
The white paper would call for the end of the thrift and specialty charters, including industrial loan companies, credit card banks, and nonbank banks.
The plan would also require the regulation of credit default swaps and require the originator of a loan to retain an economic interest in that loan when it is sold onto the secondary market.
"This is a difficult time for our nation," Obama said. "But from this period of challenge, we can once again tap those values and ideals that have allowed us to lead the global economy, and will allow us to lead once again. That is how we will help more Americans live their own dreams. That is why these reforms are so important."