White House To Revamp Financial Regulations

President Obama on Wednesday will offer his plan to redo financial regulation to avoid a repeat of the financial crisis that still hangs over the U.S. economy. David Wessel, economics editor of The Wall Street Journal, talks with Renee Montagne about the administration's plan to overhaul the country's financial rule book.

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RENEE MONTAGNE, host:

President Obama is hoping to revamp how financial firms are regulated. The goal is to avoid another economic meltdown and he'll unveil his plans tomorrow. For a preview we turn to David Wessel. He's economics editor of The Wall Street Journal.

Good morning.

Mr. DAVID WESSEL (Economics editor, Wall Street Journal): Good morning, Renee.

MONTAGNE: And, David, what are the key elements of the president's plan?

Mr. WESSEL: Well, in order to prevent big firms like Lehman Brothers or Bear Stearns or AIG from threatening the entire economy again the president wants to give the Fed much more power over these companies, whether they're banks or not, make them hold bigger capital cushions, require them to lend less money and then to set up a system so that if one of them does get in trouble it can be closed the way a small bank is now closed by the Federal Deposit Insurance Corporation instead of in some glorious weekend of chaos on Wall Street.

MONTAGNE: And there was some talk of setting up a single agency, a kind of uber agency, to oversee the financial system. What's happened to that idea?

Mr. WESSEL: Right. That was an idea that actually the British embraced some time ago. And it turns out that it doesn't prevent big problems. So the Obama administration has decided to basically keep the existing structure and try and toughen the rules and mostly try to get the banks and other financial firms to hold more capital. There will be more regulation, but there won't be an uber agency.

MONTAGNE: And the structure, just briefly, for those of us who aren't as knowledgeable as you are, would be what?

Mr. WESSEL: Well, the current regulatory system in the United States has lots of little agencies and some big ones. Not very many of them would go away under the Obama plan. There would be more power at the Fed. There would be some council of regulators that doesn't appear to have much power. There would be a brand-new consumer agency whose job would be to enforce rules against products that are deemed inappropriate for consumers - kind of a way to prevent another subprime mortgage explosion.

MONTAGNE: And the Fed, you suggest, would have more power. Would that be the most power in overseeing the financial system? And if true, is that a good thing?

Mr. WESSEL: Well, there are some people who wonder whether the Fed should have the central role in this. there're people who point out that the Fed on one hand contributed to the problem by the policies it had before - very low interest rates for a long time, not being an aggressive regulator. And there are people who think that the Fed is getting too much power given that it has so much independence in our system.

The administration's answer to that is there's good points made there, but there's no alternative to the Fed. Every option is like having a committee that runs a crisis and that won't work or an agency that has less expertise and less skill at dealing with these problems.

MONTAGNE: So, David, as this seems to be shaping up now, the president's ideas for changing the regulatory system, is this a big change or barely any change at all or, you know, down the middle?

Mr. WESSEL: No, this is a big change. It may not be as radical as some people want, but by the standards of these regulatory changes, it's quite large. It's called the most sweeping changes since the Great Depression, or the period that followed it. And it also is very carefully structured, I think, to try and get through Congress. There've been lots of blueprints before that made very nice reading, for those who are into this, but never went anywhere.

This one is kind of intricate balance of substance and politics. They've worked closely with members of Congress. They think they have a very good shot at getting something like this through the House this year. The big challenge is going to be whether they can get the Senate to go along, which is a little more skeptical of some elements of the plan.

MONTAGNE: And, of course, we'll be following that as it passes through all these levels. David, thanks very much for joining us.

Mr. WESSEL: You're welcome, Renee.

MONTAGNE: David Wessel is economics editor of the Wall Street Journal.

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