Administration calls for more limits for financial system

WASHINGTON — Aiming for greater limits and more clarity in the nation's financial system, the Obama administration on Monday proposed adding muscle to the Federal Reserve and new restrictions on complex securities whose collapse choked lending and hit millions of American households.

At the same time, the administration gingerly sidestepped some regulatory changes, leaving aspects of the politically charged work for Congress, which must approve the proposed blueprint.

Treasury Secretary Timothy Geithner said the regulatory overhaul will eliminate "gaps" in the financial system that encouraged risky behavior leading up to the meltdown.

Under the administration's plan, all large institutions whose failure could threaten the stability of the financial system would be supervised by the Fed. That sets up a potential clash with some key lawmakers who believe the Fed is overtaxed and unaccountable to Congress.

"I just think we're heaping too much on the Federal Reserve," said Rep. Paul Kanjorski, D-Pa., a member of the House Financial Services Committee.

Obama's plan would create a council of regulators responsible for broad coordination across the financial system. Administration officials said it also would offer a stronger framework for investor protection. Industry officials expect the administration to propose a consumer protection entity to oversee products ranging from credit cards to annuities.

"We had a financial system that was fundamentally too unstable and fragile, and it did a bad job of basic protection of consumers and investors," Geithner said during an economic conference in New York hosted by Time Warner Inc. "Those are things we have to change."

The administration's regulatory proposals were previewed in an opinion piece by Geithner and Lawrence Summers, director of the president's National Economic Council, in Monday's Washington Post. Further details were obtained from Treasury and industry officials who have been discussing the regulatory overhaul with the administration. President Barack Obama will unveil the proposals in a speech Wednesday and Geithner will testify Thursday before Congress.

Obama appears to have backed away from a more extensive overhaul that would have consolidated all banking regulation into one agency. Supporters of this approach, including Sen. Charles Schumer, D-N.Y., have argued that the current system is inefficient.