Obama Plans For Financial Regulation Overhaul
RENEE MONTAGNE, host:
President Obama today unveils a sweeping overhaul of financial regulations. It's an overhaul aimed at fixing failures that led to the global economic meltdown. Among the proposals: the creation of a Consumer Financial Protection Agency, and also the elimination of one bank regulator. NPR has obtained a near-final draft of the administration's proposals, and our economics correspondent John Ydstie joins us now to talk about it.
Good morning, John.
JOHN YDSTIE: Hi, Renee.
MONTAGNE: Tell us about this document. For one thing, it shows the Federal Reserve gaining power in one area, but losing power in another.
YDSTIE: Right. The administration has been saying for some time that it wants to give the Fed more power to oversee large financial firms whose failure could undermine the whole system - companies like AIG, which were, of course, part of the cause of the recent crisis. So that proposal is in the white paper the president is issuing today.
But the Fed's power to take some of the unusual emergency action it has during this crisis would be reined in somewhat, requiring an okay from the Treasury. And in addition, the Fed would lose some of its consumer protection authority to this new entity, the Consumer Financial Protection Agency.
MONTAGNE: And what's the thinking behind taking away consumer protection authority from the Fed and then putting it into a new agency?
YDSTIE: Well, one reason is a feeling on Capitol Hill that the Fed dropped the ball on protecting consumers from products like subprime mortgages, that are at the heart of this financial crisis. Remember, Alan Greenspan was warned about them by a Fed governor several years before the crisis, but he declined to crack down on them.
But another reason is that, as President Obama said in interviews yesterday, there just needs to be one regulator focused on and responsible for looking after consumers and scrutinizing financial products like credit cards and mortgages.
As the administration has pointed out, you can buy a toaster for about 30 bucks, and it's more highly regulated than a mortgage that will cost you hundreds of thousands of dollars. But both can cost you your home if they catch fire.
MONTAGNE: So in the president's proposal, there's a new consumer protection agency, but one less bank regulator.
YDSTIE: Right. The administration had said it - one of its goals was to streamline banking regulation because there are too many regulators, and banks could shop around for the most lenient one. And since most of the regulators are supported by fees from the banks, there's competition to attract banks. So the administration is proposing to eliminate one regulator, the Office of Thrift Supervision, actually merge it with another regulator, the OCC, and then change the name.
But that still leaves three federal regulators, not to mention state bank regulators.
MONTAGNE: Talking to NPR economics correspondent John Ydstie. And John, it doesn't sound like a whole lot of streamlining.
YDSTIE: No, it's not. But the problem is that there are powerful interests protecting their turf. And the administration may feel it's not worth a fight, especially since there's so much more they want to do, like force banks to hold more reserves against losses, institute some regulation of hedge funds and things like that.
MONTAGNE: Just let me - this new Consumer Financial Protection Agency, is it likely to have enough support in Congress, for instance, to get off the ground?
YDSTIE: Well, consumer groups are very strongly for it, but the financial industry opposes it very strongly. They argue it's going to undermine consumer protections already in place, and that it might make consumers less likely to take responsibility for their own actions. So this is likely to produce a big fight.
MONTAGNE: John, thanks very much.
YDSTIE: You're welcome, Renee.
MONTAGNE: NPR economics correspondent John Ydstie.
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