US President Barack Obama wants Congress to act this year on what is billed as the most sweeping financial regulatory reform since the 1930s, despite a crush of other business, a senior aide said on Friday.
Lawrence Summers, chairman of Obama’s National Economic Council, also said that despite hopes for a return to economic growth in the third quarter this year, US unemployment would remain “unacceptably high” for years.
He also warned that the government would not declare premature victory and pull its billions of dollars in support funding out of the finance and banking sector too quickly.
Obama, who is set to give a major speech in New York tomorrow on the next steps in his economic rescue effort, is hoping to add a transformation of the finance sector to a historic health care overhaul before the end of this year.
“The president famously said during the campaign that to be president you have to be able to do more than one thing at once,” Summers said. “I think that same idea applies to the 535 members of the Congress.”
Summers said he was confident that the banking and financial service committees in the Senate and House of Representatives could slog through the ultra-complicated administration plans quickly enough to permit votes this year.
“We believe it is very important to pass financial regulatory reform this year,” he said.
Popular Washington wisdom holds that Congress and the US political system can only handle one big ticket issue at a time, so passing regulatory reform would be a challenge with Capitol Hill consumed by Obama’s health care fight.
Lawmakers are also consumed with what would be an historic energy bill designed to cut global warming emissions, though doubts have surfaced in recent weeks over the timetable for passing the legislation.
Summers argued that defining new regulations for a financial industry that ran amok before the crisis was vital to underpinning the fragile recovery expected to be under way soon, and to head off future crises.
“We can no longer afford to take an approach that is institution by institution, but instead have to focus on the stability of the system,” Summers told a small group of reporters.
“If an institution is so large and so interconnected that its failure poses a threat to systemic stability ... it has to be the responsibility of some regulator to insure its safety and soundness,” he said.
“We cannot have a viable private sector financial system in which failure is not a possibility. Our financial system will not be fail safe until it is safe for failure,” he said.
Obama’s speech tomorrow at historic Federal Hall on Wall Street will come on the anniversary of the collapse of 158-year-old Lehman Brothers, which shook confidence in the US financial system and set off a global panic.
His proposals for greater regulation would give the Federal Reserve expanded powers to oversee regulation on all finance firms or banks that pose a significant systemic risk to the wider financial infrastructure.
They would introduce new discipline and transparency into financial markets and would enable investors to better ride out the failure of one or more large financial institution.
The reforms will include the creation of a Consumer Financial Protection Agency to shield Americans from the extremes of credit, savings and mortgage markets.
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