President Barack Obama on Saturday applauded the House of Representatives' passage of an ambitious restructuring of federal financial regulations designed to correct failures that led to the economic meltdown.
He called for quick action by the Senate "because we should never again find ourselves in the position in which our only choices are bailing out banks or letting our economy collapse."
The bill would grant the government new powers to split up companies that threaten the economy, create a new agency to oversee consumer banking transactions and shine a light into shadow financial markets that have escaped federal oversight.
The House approved the bill 223-202 Friday. No Republicans voted for the bill, and 27 Democrats voted against it. Opponents argue that the broad legislation overreaches and would institutionalize bailouts for the financial industry.
The Senate is working on its own version of the package.
In his weekly radio and Internet address, Mr. Obama laid much of the blame for the tailspin the economy is now beginning to recover from on the "irresponsibility" of Wall Street institutions that "gambled on risky loans and complex financial products" in pursuit of short-term profits and big bonuses with little regard for long-term consequences.
"It was, as some have put it, risk management without the management," he said.
It was the worst economic downturn since the Great Depression, a "disaster," President Obama said, that in the past two years put some 7 million people out of work. It wouldn't have happened, he said, had the rules governing Wall Street been clearer and enforcement tougher.
Mr. Obama singled out Republicans and industry lobbyists for trying to block the changes.
Last week, top House Republicans urged more than 100 financial industry lobbyists to work harder to defeat the bill. Lobbyists have spent more than $300 million this year trying to scuttle the bill.
Opponents say that the changes would limit consumer choice and that added federal oversight would stunt financial market innovation.
President Obama suggested that was one risk worth taking.
"Americans don't choose to be victimized by mysterious fees, changing terms and pages and pages of fine print. And while innovation should be encouraged, risky schemes that threaten our entire economy should not," he said. "We can't afford to let the same phony arguments and bad habits of Washington kill financial reform and leave American consumers and our economy vulnerable to another meltdown."
President Obama has scheduled a meeting Monday at the White House with financial services industry leaders to seek support for his effort to tighten federal oversight of the industry and to limit pay for top executives at institutions that accepted billions in bailout money from the government.
Q & A on Wall Street Regulation Bill
Q. Who does it affect?
A. Financial institutions, both banks and nonbanks; homeowners, borrowers and credit card holders; insurance companies; hedge funds; traders in complex derivatives; and securities rating companies.
Q. How would it avoid another Wall Street crisis?
A. It creates a Financial Services Oversight Council made up of the Treasury secretary, the Federal Reserve chairman and heads of regulatory agencies. The council would monitor the financial markets to watch for potential threats to the financial system. It would identify firms and activities that should be subject to heightened standards, including requirements that they place more money in their reserves. Companies would have to plan for their own demise, detailing how they would be dismantled if they fail. The government could dismantle even healthy firms if they are considered a grave risk to the economy.
Q. Who would pay for a failing firm?
A. Failing banks are dissolved now by the Federal Deposit Insurance Corp. The legislation proposes that the costs of large nonbank institutions that fail first be paid for by shareholders and creditors. Even secured creditors would have to take a hit, losing up to 10 percent of their security. If the failure still has damaging financial repercussions, the FDIC would tap a special $150 billion fund paid for by large institutions with $50 billion in assets or more, or hedge funds with at least $10 billion in assets.
Q. What are consumers likely to see?
A. The legislation creates a Consumer Finance Protection Agency that would oversee consumer lending - mortgages, credit cards, payday loans and terms on savings accounts. It would take consumer regulation and enforcement powers away from bank regulators. Under current law, states cannot supersede federal consumer laws, but the legislation would permit states in some instances to impose tougher consumer laws on financial institutions. Banks could escape state laws by claiming they "materially" impair the business of banking. Several industries would be exempt from CFPA oversight, including retailers, auto dealers, lawyers and accountants.
Q. What else does it do?
A. It brings the unregulated $600 trillion derivatives market under government oversight. Derivatives are complex financial instruments, such as credit default swaps, blamed for accelerating the Wall Street panic last year. Some companies that use them to hedge against risk from new requirements in the overhaul legislation would get exceptions. So would companies considered too small to pose a risk to the financial system. The Obama administration did not want the exceptions, and consumer advocates say they give Wall Street a break. Hedge funds, which operated in shadow financial markets, would have to be registered with the government.
Q. What about those executive salaries?
A. Company shareholders would get a nonbinding vote on the pay of top executives. Federal banking regulators would have to approve compensation practices, though not actual pay, at banks and bank holding companies.