The Obama administration plans to merge two banking regulators and create a federal watchdog on consumer financial products as part of a sweeping reform plan to be formally unveiled on Wednesday.
The U.S. Office of Thrift Supervision will merge with the Office of the Comptroller of the Currency, both bank overseers, a congressional aide said, citing a briefing given by Treasury Department officials.
The administration has been discussing for six months how best to tighten bank and market regulation in response to the worst global financial crisis in generations. An OTS-OCC merger had been seen as likely to be included in its plan.
President Barack Obama will formally unveil the proposals on Wednesday. Treasury officials were giving briefings in both the Senate and the House of Representatives on Tuesday evening.
Obama pledged earlier on Tuesday in remarks at the White House that he would pursue major changes in financial oversight, but warned it will be a heavy lift politically with special interests already offering opposition.
A key element in the plan will be creating an independent Consumer Financial Protection Agency to write and enforce rules on fair lending and other matters.
The administration wants to accomplish a wide range of changes in regulation to try to prevent a recurrence of the crisis that has been hammering economies around the world.
Goals include closing gaps in regulation without shackling firms so tightly that they cannot support economic growth; forcing banks to hold more capital so they can better survive tough times, and bringing more transparency and accountability to financial markets that in recent years expanded far beyond the government's ability to keep track of them.
FED TO POLICE SYSTEMIC RISK
The administration wants to give the Federal Reserve new powers to police systemic risk, in conjunction with a council of regulators, as a way to make sure that the failure of one important company does not destabilize the broader economy.
It also will propose empowering the government to seize and unwind large, troubled companies, and will seek to rein in markets for securitized debt and over-the-counter derivatives.
There is going to be streamlining, consolidation ... so that you don't find people falling through the gaps, the president told reporters.
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.
Months of debate lie ahead. Congress has set more than a dozen hearings on financial reform between now and mid-July.
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,' he 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.
HOYER ON TIMING
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.
A bill was introduced in the Senate on Tuesday that would require advisers of hedge funds, private equity, venture capital funds and other private investment pools to register with the U.S. Securities and Exchange Commission.
The president's remarks came shortly after the U.S. Chamber of Commerce, the nation's largest business lobbying group, told reporters it opposes parts of the Obama plan.
While the shape of the Obama plan has been known for some weeks, sources familiar with discussions at the U.S. Treasury Department said on Tuesday one potential idea will be left out for now -- federal insurance regulation.
Representative Barney Frank, chairman of the House Financial Services Committee, said on Tuesday that the administration is not ready to weigh in on an optional federal charter for insurers, said sources who heard him speak at a fundraiser hosted by an insurance industry group.
When the reform plans are unveiled on Wednesday, officials are expected to fault the fragmented nature of insurance regulation, which is now handled by state and territorial governments, and there may be a proposal to form a federal clearinghouse to gather information about the sector.
(Additional reporting by Corbett Daly, Karey Wutkowski, Patrick Rucker, Thomas Ferraro, Rachelle Younglai and Emily Kaiser; Editing by Chizu Nomiyama and Jan Paschal)