Obama wants new financial agency for consumers

WASHINGTON -- President Obama is about to recommend creation of a regulatory agency to protect consumers in their credit, savings and other banking transactions.

The new 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 on Wednesday, officials said.

Already the nation's central bank, the Fed 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 powers, Obama also would transfer some banking authority that now rests with the Fed and the Treasury Department to a new consumer agency — the Consumer Financial Protection Agency.

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 Fed 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 Bros.

Obama said Tuesday the rules will try to eliminate the kind of excessive risk-taking by financial institutions that proved "very dangerous to the American people."

"It's going to be, as usual, a heavy lift because there are going to be people who want to keep on taking these risks, counting on U.S. taxpayers to bail them out if their bets go bad," he said.

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.