President Barack Obama warned financial firms on Monday to heed the lessons of Lehman Brothers' collapse a year ago and get behind a regulatory overhaul he wants Congress to pass this year.
Obama, who has focused most of his energy on healthcare reform in recent weeks, went to Wall Street to highlight another top priority of his administration -- updating financial rules to prevent another economic collapse.
While the economy and the financial system are showing signs of recovery, Obama said that was not an excuse to avoid reform.
Normalcy cannot lead to complacency, he said at Federal Hall in the heart of Wall Street.
Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we're still recovering, they're choosing to ignore those lessons.
Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy on September 15, 2008, triggering a global financial crisis that also helped propel Obama to the presidency as Americans welcomed his cool response to the problem.
SLOW PROGRESS ON GLOBAL ISSUE
Financial reform will be a key issue at a G20 summit of leading developed and developing nations in Pittsburgh next week but progress on Obama's agenda has been slow.
Obama's speech also sought to show other countries his administration is serious about tackling weaknesses and excesses in the U.S. financial system that are blamed for setting off the global crisis.
As the United States is aggressively reforming our regulatory system, we're going to be working to ensure that the rest of the world does the same, he said.
Under a proposal put forward in June, the Federal Reserve would get new powers to monitor big financial firms and a new Consumer Financial Protection Agency would be created.
Obama emphasized the CFPA as he outlined his proposals, indicating it has become a top priority.
This crisis was not just the result of decisions made by the mightiest of financial firms. It was also the result of decisions made by ordinary Americans to open credit cards and take on mortgages, he said, adding some lenders were deceitful even as some people took on loans they could not afford.
This is in part because there is no single agency charged with making sure that doesn't happen. That's what we intend to change.
Many of the overhaul provisions are controversial and the legislation has bogged down in Congress, possibly delaying reforms until 2010 or resulting in a watered-down package.
Obama told financial firms not to wait for a law to pass before they started making reforms, urging them, for example, to put 2009 senior executive bonuses up for shareholder votes.
Despite heavy rhetoric in the United States and Europe about reining in executive pay, there has been little real action as Wall Street and London fret about losing their competitiveness as leading financial centers and companies work to insulate top earners from the effects of any changes.
WARY OF REGULATION
Alan Lancz, president of Ohio-based investment advisory firm Alan B. Lancz & Associates Inc, said Wall Street was wary of too much regulation.
It could really restrict our progress, growth and our economic system, he said, reacting to Obama's speech.
Obama said there would be no return to the days of reckless behavior and that Wall Street could not expect further taxpayer bailouts without repercussions.
Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall, he said, adding he wanted to work with financial firms to make sure regulation did not stifle innovation.
One lawmaker at the center of efforts to overhaul U.S. financial rules said the legislation will be completed.
We are very much on track, Barney Frank, chairman of the House of Representatives Financial Services Committee, said on Monday. This will be done.
The Treasury Department said on Monday the U.S. financial system remained fragile and that withdrawing stimulus measures had to be done carefully to avoid disrupting a nascent recovery.
The stock market has rebounded in the last eight months, with the Dow index around 9,625 points on Monday afternoon, more than 1,300 points higher than its close at 8,281.22 points on the last trading day before Obama took office on January 20.
Still, unemployment has worsened significantly. The joblessness rate was 7.6 percent in January but hit 9.7 percent in August and is expected to stay high well into next year.
(Additional reporting by Jeff Mason, Patricia Zengerle and Ellis Mnyandu; Editing by John O'Callaghan and Jackie Frank)