President Barack Obama is poised Wednesday to outline the biggest financial regulatory overhaul since the Great Depression, part of sweeping measures by the administration to prevent a future economic crisis as severe as the current one.
"The broad principle is that a lack of oversight, a series of regulatory gaps, allowed financial institutions -- not just banks, but non-bank institutions -- to engage in wild risk-taking that didn't simply imperil those institutions, but imperiled the United States' economy and had a profound recessionary effect on the world economy," Obama said Tuesday at the White House.
"We are going to put forward a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again," he said. "We expect that Congress will work swiftly to get these laws in place. I want to sign them and we want to get them up and running."
Already drawing barbs from a range of skeptics, the proposals will include the creation of a Consumer Financial Protection Agency to look out for consumers' rights and a comprehensive crackdown on securities markets.
The administration's proposals also call for a council, to be chaired by the Federal Reserve, to monitor systemic risks to the economy; authority for the government to wind down large, failing firms; increased regulation of securities and derivatives markets and more oversight of global financial firms.
As part of these plans, the administration will call for the creation of the Financial Services Oversight Council, to be chaired by the Treasury Department, to help fill gaps in supervision and identify emerging risks. Stricter capital requirements will be implemented across the board.
The administration will also get rid of the Office of Thrift Supervision and create a new national Bank Supervisor to oversee federally chartered depository institutions.
Increased regulation is a key part of the new plan. The administration wants regulation of over-the-counter derivatives, like credit-default swaps, the registration of hedge funds and other private pools of capital, as well as improvements in the regulation of money market mutual funds.
Trying to crack down on problems in the past with mortgage-backed securities, the administration will impose stricter reporting requirements on the issuers of these mortgage securities, insist that the originators maintain a long-term financial interest in them, and demand new rules for credit rating agencies evaluating the securities.
Under the proposal, the Securities and Exchange Commission would take on a larger role in requiring disclosures. Credit rating agencies would also have to disclose conflicts of interest.