All financial firms have benefited from U.S. taxpayer support and must yield to efforts to tighten regulation to prevent a future crisis, White House economic adviser Lawrence Summers said on Friday.
The time has come for fundamental change in the financial sector of our economy -- both in how financial institutions conduct their business and how they are regulated, Summers said in remarks prepared for delivery at a conference in New York sponsored by The Economist magazine.
The Obama administration has been pressing for wide-ranging reforms in U.S. financial regulations. It scored a victory on Thursday when a House of Representatives' panel passed a bill to tighten regulation of financial derivatives.
That legislation, however, took a step back from an administration proposal by exempting standardized over-the-counter derivatives from having to go through a central clearinghouse when corporations are using them to hedge operational risks. It also exempted some standardized swaps from mandatory exchange trading.
The action followed months of drift and closed-door talks with bankers and Republicans who are fighting to protect profit margins from the Democrats' drive for tougher rules.
Summers, who heads the National Economic Council, argued the banks at the center of the credit crisis had a moral imperative to be part of the solution.
There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system. This has direct relevance on the changing nature of the social compact between the financial sector and the broader economy, he said.
Financial institutions that have benefited from government support can, should, and must use this moment to think about what they can do for their country -- by accepting the necessary regulation to protect the American people, Summers added.
Wall Street was no small part of the cause of the crisis and Wall Street needs to be part of the solution. (Reporting by Tim Ahmann; Editing by Neil Stempleman)