Setting up a certain fight with big business, President Obama is proposing a new regulatory agency to police lenders and protect consumers in credit, savings and other banking transactions.
The consumer agency and a newly empowered Federal Reserve will be two of the central elements of a broad overhaul of the financial regulatory system that the president will announce today, officials said.
Already the nation's central bank, the Federal Reserve would supervise large financial institutions that are considered so big that their failure could undermine America's economy, according to the administration proposal.
But even as the Fed gains new powers, Obama also would transfer some banking authority that now rests with the Federal Reserve and the Treasury Department to the new consumer agency -- the Consumer Financial Protection Agency.
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"The problem is right now you have consumers and investors, (and) the agencies that are responsible also have responsibility for the integrity of the institutions," Obama said Tuesday in an interview with Bloomberg TV. "So you've got divided attention. We want to make sure we've got a consolidated focus on consumer and investor protections."
The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration's proposal. Many bankers oppose a new consumer protection regulator and many lawmakers in Congress worry the Fed could turn into a too-powerful and independent financial overseer. Friction over those points could slow any major overhaul of banking and market regulations.
In addition to having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system.
The arrangement is designed to prevent any more crashes like those that felled AIG and Lehman Brothers.
The plan does not attempt major consolidation of regulatory agencies and does not inject itself in an ongoing debate over whether to bring some insurance companies under federal oversight.
Obama's decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt. The financial crisis was precipitated in part by the preponderance of securities backed by mortgages that went sour when the housing market collapsed.