The Obama administration plans to streamline U.S. bank oversight and put the Federal Reserve in charge of monitoring big-picture economic risks in a sweeping regulatory overhaul to be formally unveiled on Wednesday, a senior administration official said.
The Office of Thrift Supervision, a Treasury Department unit, would be closed and the federal charter under which savings and loans operate eliminated under the plan, the official told reporters on a conference call on Tuesday.
The Fed would work in conjunction with a council of other regulators, to be chaired by Treasury, on monitoring systemic risk under the plan.
The aim is to avert future problems like the severe banking and capital markets crisis that has hammered economies worldwide since early 2008, without shackling firms so tightly that they cannot drive economic growth.
There is going to be streamlining, consolidation ... so that you don't find people falling through the gaps, President Barack Obama told reporters earlier on Tuesday.
Whether it's on the consumer protection side, the investor protection side, the systemic risks ... It's going to be a much more effectively integrated system than previously, he said.
The administration has been discussing for six months how best to tighten bank and market regulation in response to the crisis, with the European Union moving on a similar track, more quickly in some areas than the United States.
Months of debate lie ahead in the U.S. Congress, with many of the proposed changes requiring legislation. Senate and House of Representatives committees have scheduled more than a dozen hearings between now and mid-July.
Obama on Wednesday will also call for establishment of an independent consumer financial products watchdog agency to write and enforce rules on fair lending and other matters.
Other administration goals include forcing financial groups to hold more capital so they can better survive tough times, and bringing more transparency and accountability to exotic financial markets that in recent years expanded far beyond the government's ability to keep track of them.
OBAMA SEES 'HEAVY LIFT' ON REFORM PLAN
The president pledged to pursue major changes, but warned it will be a heavy lift politically with special interests already offering opposition. Earlier on Tuesday, the U.S. Chamber of Commerce, the nation's largest business lobbying group, said it opposes key parts of the plan.
The administration wants to give the Fed new powers to police systemic risk as a way to make sure that the failure of one large company -- like bailed-out mega-insurer American International Group, for instance -- does not destabilize the broader economy.
It also will propose empowering the government to seize and unwind large, troubled companies. Part of the proposal would require large, Tier One companies to maintain contingency plans for their unwinding in case of future trouble.
The administration will also seek to rein in markets for securitized debt and over-the-counter derivatives, as well as more regulation of money market mutual funds, credit rating agencies and hedge funds.
It will push for changes in corporate governance that could give shareholders more power to restrain executive compensation, as well.
We are going to put forward a very strong set of regulatory measures ... We expect that Congress will work swiftly to get these laws in place, Obama said.
But it is going to be as usual, a heavy lift ... You'll hear a lot of chatter about 'We don't need more regulation' and 'government needs to get off our backs,' Obama added.
There is a short memory, unfortunately, and I think that's what some of the special interests and lobbyists are going to be counting on, that somehow we've forgotten the disaster that arose out of their reckless behavior. And I'm going to keep on reminding them so we make sure that we get something in place that prevents this kind of situation from happening again.
House Democratic leader Steny Hoyer said on Tuesday that the House will deal with financial regulation reform in late July or soon after Congress' August recess. The outlook in the Senate, which moves more slowly, was unclear.
(Reporting by Kevin Drawbaugh; Additional reporting by Corbett Daly, Karey Wutkowski, Patrick Rucker, Thomas Ferraro, Rachelle Younglai and Emily Kaiser; Editing by Gary Hill)