Washington: US President Barack Obama will try on Monday to revive a stalled push for stricter oversight of Wall Street, using the anniversary of Lehman Brothers’ collapse to argue for sweeping regulatory changes.
Obama’s wide-ranging economic address in New York will also discuss plans to unwind the government’s involvement in the financial sector and call upon Wall Street firms to take responsibility and avoid reckless behavior. He is to speak at 12:10 EDT (1610 GMT).
Gaps in the regulation of US banks and capital markets have been blamed for the subprime mortgage crisis and global financial chaos triggered after Lehman filed for bankruptcy on 15 September 2008.
Obama and other backers of a financial overhaul say new rules are crucial to heading off another catastrophe.
But as Obama prepares to deliver the speech at the historic Federal Hall in the heart of Wall Street, the regulatory reform effort has hit resistance in Congress, casting doubt on Obama’s goal of enacting the legislation by year end.
In addition to jumpstarting the regulatory reform legislation, Obama will seek to take credit for the relative calm that has settled over the markets in the aftermath of the worst financial crisis since the 1930s great depression.
Obama’s battle to pass major health care legislation has taken a toll on his popularity but he hopes to get a boost from signs the economy is starting to improve.
Treasury secretary Timothy Geithner last week told a congressional panel that the economy, while still ailing, was in far better shape than a year ago and the government could begin unwinding some of the massive support given to markets.
Adding to pressure on Obama to try to get the regulatory overhaul back on track is the approach of the Group of 20 summit on 24-25 September in Pittsburgh.
Obama will play host to leaders of major developed countries including Britain, Germany and Japan and fast-growing economies such as China for talks on strengthening the global financial structure.
Some of Obama’s global counterparts want Washington to move more swiftly to reform the still vulnerable financial system. The all-consuming focus on health care legislation, Obama’s highest priority, has overshadowed a package of financial regulatory measures the president unveiled in June.
Fed may get greater powers
Obama would give the Federal Reserve new powers to monitor big financial firms that could pose a “systemic risk” to the economy. He would also set up a process for the federal government to seize and liquidate troubled financial firms and create a new consumer watchdog agency for products like mortgages, car loans and credit cards.
Advocates for financial change would like to see the president take a more hands-on role in the legislation.
“It’s up to the administration and the congressional leadership to breathe some life into what’s left of the reform concept,” former Fed vice chairman Alan Blinder wrote in a column in the New York Times. Blinder said the reform effort’s pulse now seemed “faint.”
Senior White House adviser Lawrence Summers told reporters Obama was committed to doing what it takes to help the legislation advance. But it will likely take more than a high-profile speech to get Washington to agree on a plan.
Blinder and other supporters of tighter rules worry lawmakers may find it more politically expedient to pass a “reform lite” package of measures that would fail to safeguard against another crisis.
While lawmakers tussle over the shape of reforms, there are also differences within the administration. The turf battles prompted Geithner in a meeting last month to scold regulators and urge them to get behind Obama’s plan.
Lehman was once the fourth-largest US investment bank and its bankruptcy filing was the largest in US history.
The firm’s demise and the near-collapse of insurance giant American International Group Inc sent shockwaves throughout the global financial system.
Obama has long favored tighter oversight of US financial markets and made regulatory reform one of the platforms of his presidential candidacy.
White House aides are mindful of the risk that the zeal to revamp regulations may wane as the economy improves and memories recede of last fall’s financial turmoil.
“I think it is just crucial not to lose this window,” White House economist Christina Romer said.