By Thomas Ferraro
WASHINGTON, June 17 (Reuters) - President Barack Obama's proposed financial regulatory overhaul could face big changes in Congress, where over the years members of both parties have permitted lax controls blamed for the U.S. economic meltdown.
Democratic and Republican lawmakers found fault with at least some of the ideas put forward in the president's proposal, which seeks to clamp down on the country's biggest financial firms in the hope of preventing another economic crisis.
The biggest sticking point may be the role of the Federal Reserve, the U.S. central bank. Obama envisions the Fed overseeing the largest financial firms to ensure that they are not taking excessive risks that could destabilize the economy.
But several top Democrats and Republicans questioned whether that would vest too much authority in an agency that has already drawn the ire of many lawmakers for its role in the costly bailouts of Bear Stearns and AIG.
'There's not a lot of confidence in the Fed at this point,' Senator Christopher Dodd, chairman of the Senate Banking Committee, said on Wednesday.
Senator Richard Shelby, the committee's ranking Republican, said the Fed had 'utterly failed' as a regulator and putting it in charge of regulating systemic risk would be piling on too many responsibilities.
Still, Obama's fellow Democrats, who control Congress, vowed to move ahead on legislation that aims to reduce risks and increase stability in financial markets rocked by scandals, incompetence and corporate failures.
It was unclear how quickly they could act with a number of lawmakers raising concerns and promising change.
Representative Louise Slaughter, a member of the House Democratic leadership, complained that the proposal needs to be tougher to prevent another financial crisis from wreaking havoc on the broader economy.
'It's important that President Obama show the American people he is serious about clamping down on the financial industry, which has been far too loosely regulated for too long,' Slaughter said. 'I will follow this legislation closely and intend to seek opportunities to further strengthen it.'
CONSUMER PROTECTIONS
Assistant Senate Democratic Leader Dick Durbin, however, hailed creation of a Consumer Financial Protection Agency, a centerpiece of Obama's proposal, saying: 'It's time we put the needs of American families above the interests of Wall Street.'
House Republican Leader John Boehner, a frequent Obama critic, said, 'There are clearly some ideas that we agree with' in the legislation, which include steps to streamline U.S. bank oversight and put the Federal Reserve in charge of monitoring big-picture economic dangers.
'But I do think that this idea of having this consumer board is very cumbersome, will limit the number of new financial products that come to the market and will give the government an awfully strong presence in an industry that's been very creative,' Boehner said.
Ethan Siegal of The Washington Exchange, a private firm that tracks Congress for institutional investors, said the administration had put forward a pragmatic, reasonable plan. However, he said he was skeptical that Congress would pass any significant reform this year.
'Instead, in the near-term I think that oversight and regulatory changes will be implemented as best as possible at the agency and regulatory level by the Obama administration and the regulators themselves,' he said.
Since shortly after the Great Depression, there have been a number of drives to tighten regulation of the financial system. But they have been shot down by lawmakers in both parties who favored having the industry essentially regulate itself.
'Everyone has skin in this blame game,' said Siegal.
Obama wants to enact the plan into law before the end of the year. Its main components must be approved by Congress, and some preliminary language has been delivered.
The House is likely to move within months, but the outlook in the Senate, now busy with healthcare reform, is unclear.
Senate Judd Gregg, ranking Republican on the Budget Committee, said there is plenty of work to do.
'Today's announcement by the White House is only a first step in starting the overdue improvements in monitoring America's financial services industry,' Gregg said.
(Additional reporting by Jeremy Pelofsky, Susan Cornwell and Richard Cowan; Editing by Dan Grebler) Keywords: FINANCIAL REGULATION/CONGRESS (thomas.ferraro@thomsonreuters.com; +1 202 898 8391) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, June 17 (Reuters) - President Barack Obama's proposed financial regulatory overhaul could face big changes in Congress, where over the years members of both parties have permitted lax controls blamed for the U.S. economic meltdown.
Democratic and Republican lawmakers found fault with at least some of the ideas put forward in the president's proposal, which seeks to clamp down on the country's biggest financial firms in the hope of preventing another economic crisis.
The biggest sticking point may be the role of the Federal Reserve, the U.S. central bank. Obama envisions the Fed overseeing the largest financial firms to ensure that they are not taking excessive risks that could destabilize the economy.
But several top Democrats and Republicans questioned whether that would vest too much authority in an agency that has already drawn the ire of many lawmakers for its role in the costly bailouts of Bear Stearns and AIG.
'There's not a lot of confidence in the Fed at this point,' Senator Christopher Dodd, chairman of the Senate Banking Committee, said on Wednesday.
Senator Richard Shelby, the committee's ranking Republican, said the Fed had 'utterly failed' as a regulator and putting it in charge of regulating systemic risk would be piling on too many responsibilities.
Still, Obama's fellow Democrats, who control Congress, vowed to move ahead on legislation that aims to reduce risks and increase stability in financial markets rocked by scandals, incompetence and corporate failures.
It was unclear how quickly they could act with a number of lawmakers raising concerns and promising change.
Representative Louise Slaughter, a member of the House Democratic leadership, complained that the proposal needs to be tougher to prevent another financial crisis from wreaking havoc on the broader economy.
'It's important that President Obama show the American people he is serious about clamping down on the financial industry, which has been far too loosely regulated for too long,' Slaughter said. 'I will follow this legislation closely and intend to seek opportunities to further strengthen it.'
CONSUMER PROTECTIONS
Assistant Senate Democratic Leader Dick Durbin, however, hailed creation of a Consumer Financial Protection Agency, a centerpiece of Obama's proposal, saying: 'It's time we put the needs of American families above the interests of Wall Street.'
House Republican Leader John Boehner, a frequent Obama critic, said, 'There are clearly some ideas that we agree with' in the legislation, which include steps to streamline U.S. bank oversight and put the Federal Reserve in charge of monitoring big-picture economic dangers.
'But I do think that this idea of having this consumer board is very cumbersome, will limit the number of new financial products that come to the market and will give the government an awfully strong presence in an industry that's been very creative,' Boehner said.
Ethan Siegal of The Washington Exchange, a private firm that tracks Congress for institutional investors, said the administration had put forward a pragmatic, reasonable plan. However, he said he was skeptical that Congress would pass any significant reform this year.
'Instead, in the near-term I think that oversight and regulatory changes will be implemented as best as possible at the agency and regulatory level by the Obama administration and the regulators themselves,' he said.
Since shortly after the Great Depression, there have been a number of drives to tighten regulation of the financial system. But they have been shot down by lawmakers in both parties who favored having the industry essentially regulate itself.
'Everyone has skin in this blame game,' said Siegal.
Obama wants to enact the plan into law before the end of the year. Its main components must be approved by Congress, and some preliminary language has been delivered.
The House is likely to move within months, but the outlook in the Senate, now busy with healthcare reform, is unclear.
Senate Judd Gregg, ranking Republican on the Budget Committee, said there is plenty of work to do.
'Today's announcement by the White House is only a first step in starting the overdue improvements in monitoring America's financial services industry,' Gregg said.
(Additional reporting by Jeremy Pelofsky, Susan Cornwell and Richard Cowan; Editing by Dan Grebler) Keywords: FINANCIAL REGULATION/CONGRESS (thomas.ferraro@thomsonreuters.com; +1 202 898 8391) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.