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Obama relenting on new consumer protection agency
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WASHINGTON -- The Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency, once a central element of the plan to remake regulation of the financial system, in hopes of clearing away obstacles to quick congressional approval.
In opening the door to compromise, officials are making a concession to lawmakers concerned about creating a new bureaucracy, according to congressional and some administration sources.
President Barack Obama's economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency. In either case, they are insisting on a regulator with political autonomy and real teeth, so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products.
The administration may also have to compromise on Mr. Obama's recent proposal for a rule to limit risky activities at banks, by prohibiting them from engaging in many kinds of speculative investments.
Treasury officials are preparing to send to Capitol Hill a toughly worded measure that would bar banks from making certain investments that benefit only the firms' bottom line, rather than their customers. But there is little support among either Democratic or Republican lawmakers for this proposal, known as the "Volcker rule," and Senate leaders are now closing ranks around legislation that would leave it to banking regulators, rather than the law, to decide which activities to ban.
From the start of the Obama presidency, administration officials have made far-reaching financial reform one of their highest priorities, along with overhauling the nation's health care system. Officials have vowed to put in place new rules and new regulators to prevent a repeat of the abuses that precipitated the financial crisis.
Even as the administration is showing new flexibility, some financial industry senior executives have also been coming around, easing some of their intensive lobbying against the regulatory overhaul. Instead of trying to block the proposals for a consumer protection agency and curbs on risky investment practices, these executives are working more closely with Democrats to secure a deal that the banks can live with.
After the White House escalated attacks on Wall Street earlier this year, some executives concluded that swift passage of a regulatory reform bill would be in their interest, because it would move them out the political cross hairs, industry officials said.
Adoption of a new bill would also resolve much of the uncertainty about the rules to govern the financial industry, letting companies make business decisions with more confidence.
According to some industry officials, Wall Street executives also sense that they now have a better chance for a relatively favorable bill, because the administration is in a hurry to record a major legislative achievement before congressional elections in November. The new momentum has raised hopes within the administration that a bill could be signed before the elections.
Administration officials and Democratic leaders have been seeking to win support from Republicans, who could filibuster the bill, without alienating liberals insisting on a new consumer protection agency and tough Wall Street restraints.
Senate Banking Committee Chairman Chris Dodd, D-Conn., who is shepherding that chamber's effort, on Wednesday evening said there is still no final accord between Democrats and Republicans, and aides said many vital details remain unresolved.
First Published February 25, 2010 12:00 am
