Summers Says Regulatory Plan Can Be Passed This Year
An overhaul of U.S. financial regulations remains a priority for President Barack Obama and can be achieved this year along with a plan to fix the health- care system, White House economic adviser Lawrence Summers said.
Summers, director of the National Economic Council, said new rules are needed to prevent future financial crises that “have been too large a feature on our economic landscape.”
“This is the year, after what has happened, to overhaul the system of financial regulation,” Summers told reporters today in Washington.
One year after the collapse of Lehman Brothers Holdings Inc. paralyzed credit markets and contributed to the worst recession in more than 70 years, the Obama administration is stepping up efforts to sell a plan sent to Congress in June that rewrite the rules governing the financial system.
Obama will travel Sept. 14 to Wall Street in New York, where he will again make the case for tougher financial supervision, Summers said.
“He did not come here only to respond to crises or to repair that which had recently broken,” Summers said. “He came to address much longer standing economic issues.”
Obama has proposed new regulations overseeing the systemic risk posed by large financial institutions to the financial system, the creation of new government powers to dismantle failed companies and a new agency to oversee consumer financial products.
The financial regulatory proposal has been overshadowed on Capitol Hill by efforts to overhaul the U.S. health-care industry, which have dominated the attention of congressional leaders for much of the past few months.
Health-Care Debate
Summers said it’s possible for Congress to continue work on financial regulations during the health-care debate.
“The president famously said during the campaign that to be president you have to be able to do more than one thing at once,” Summers said. “I think that same idea applies to the 535 members of the Congress.”
The House Financial Services Committee is planning hearings over the next two months on financial regulations followed by committee consideration of legislation later this year. The Senate Banking Committee has held a series of hearings on the issue and its staff is in the process of drafting legislation.
“It is very important to pass financial regulatory reform this year,” Summers said.
Obama has proposed giving more power to the Federal Reserve to oversee large financial institutions, something that faces opposition from lawmakers who blame the central bank for failing to anticipate last year’s financial crisis.
Fed’s Authority
Summers said there are discussions about how much more power to give the Fed without saying how it may interact with other regulators.
“There’s a huge amount of detail in the working-out of legislation of this kind,” Summers said. “We’ve seen the Fed as the natural place for systemic regulation, but systemic risk regulation has a number of elements.”
“Proposals are never enacted as they are first submitted,” he added.
Summers said the unemployment rate of 9.7 percent, the highest in 26 years, is “unacceptably high” and “will on all forecasts remain unacceptably high for a number of years.”
Stimulus Effects
A White House report released Sept. 10 said the $787 billion economic stimulus program has created or saved 1.1 million jobs since its implementation in February. Since the slump began in December 2008, the U.S. has lost 6.9 million jobs.
Summers said the improving economy is helping the government recoup some of the investments it has made through the Troubled Assets Relief Program, with some individual transactions yielding a profit for taxpayers.
Even so, Summers said, “on the overall uses of the TARP I don’t think it would be reasonable to expect profits, in part because some of them are directed at objectives where repayment really isn’t the objective, such as the subsidies to homeowners to avoid foreclosure.”