Administration: Congress can’t wait on financial regs

President Obama on Wednesday will unveil the details of his long-awaited financial regulatory reforms, meant to prevent a repeat of last fall’s collapse on Wall Street that sank the nation into a recession. (Read the white paper here.)

A senior administration official told reporters Tuesday night that the new regulations will require financial institutions to keep more capital on hand, prepare for financial crises and put in place other steps to eliminate the “false choice between bailouts and financial collapse.”

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The official said the administration hopes to submit legislation to Congress soon and the president wants to see a bill he can sign this year.

“It’s critical that we act now,” the official said. “We can’t afford to wait. We can’t afford to let our financial system continue to operate under a regulatory system that is inadequate.”

Obama, in an interview with Bloomberg TV on Tuesday, dismissed early criticism from Wall Street, arguing that many in that community “maybe have a shorter memory about how close we were to the abyss than I would have expected.”

“When I hear some of the commentary that’s been creeping up about, ‘You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them — all we’re doing is cleaning up after the mess that was made,” the president said.

The official outlined five key areas the administration will focus on: stronger oversight of financial institutions, strengthening the regulation of core markets and market infrastructure, strengthening consumer protection, providing the government with tools to “effectively manage” a financial crisis and leveling the global playing field.

Two proposals in particular will likely dominate much of the debate on Capitol Hill. While the administration intends to grant the Federal Reserve major responsibilities to oversee systemic risk, the central bank has been under heavy criticism for its relative opacity, its regulatory lapses in the crisis and its inability to maintain its traditional independence when setting monetary policy.

The administration’s plan to create a new Consumer Financial Protection Agency with wide authority to oversee products such as credit cards and mortgages will also draw heavy opposition from lobbying groups. The administration intends that the agency would be able to define “plain vanilla” products as well as more specific items that could receive more scrutiny.

“We need a fresh start,” the official said. “We need a clean break from the past on consumer protection.”

The official described the new agency as having “broad authority to write rules.”

While the plan has taken several months to develop, the administration decided to sidestep a number of controversial issues. Instead of collapsing the nation’s four federal banking regulators into one, the administration is seeking to do away with just one, the Office of Thrift Supervision (OTS).

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The administration also decided not to push forward on a much-discussed possible merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). That effort would have run into a tough jurisdictional fight between the agriculture committees and the House Financial Services Committee and Senate Banking Committee.

The plan will also avoid shifting authority over mutual funds from the SEC to the new consumer financial products agency, as was once under discussion.

In the interview with Bloomberg, the president said there is a need for “some significant consolidation, but we always understood that we were going to have to build off of a foundation that already existed.”

“It didn’t make sense for us to create a whole new SEC when the SEC already has some top-notch professionals who do what they do very well,” Obama said.

Treasury Secretary Timothy Geithner will answer questions about the plan on Thursday before both the House Financial Services Committee and the Senate Banking Committee.

Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, has laid out an ambitious timeline of passing legislation through his committee by the August recess. Senate Banking Committee Chairman Chris Dodd (D-Conn.) is juggling several pieces of legislation. Dodd is handling much of the day-to-day work on healthcare in place of Sen. Edward Kennedy (D-Mass.), who is undergoing treatment for brain cancer. But Dodd has said that he intends to consider financial services in the fall.