Economy can’t accept status quo, and neither will President Obama

On Monday evening, the Senate Banking Committee voted out the most significant financial reform legislation since the 1930s. The markup followed many months and countless hours of bipartisan discussions. If enacted, Chairman Chris Dodd’s (D-Conn.) legislation — like the House bill that passed last December — would help lay a stronger financial foundation for decades to come.

Leading up to the crisis, our financial regulatory system failed tragically. The system is riddled with gaps and loopholes. Important firms and markets escape oversight almost entirely. Consumer protection is inadequate. And because we lack the tools to close down large failing financial firms in an orderly way, we remain vulnerable to the risk that, in times of stress, the failure of a large financial firm might threaten the entire economy.

Despite these glaring weaknesses, special interests have spent hundreds of millions of dollars to protect the status quo. They have tried to postpone financial reform until the memory of the crisis fades. They have criticized Chairman Dodd and the administration for “rushing” financial reform.

It has been 18 months since President George Bush asked Congress for $700 billion to stabilize the financial system, nine months since President Barack Obama put forward a comprehensive reform plan, and three months since the House passed strong legislation. Only in Washington would anyone say that the administration is trying to “rush” financial reform.

At the same time as special interests try to delay financial reform, they are working hard to weaken it. They have focused most aggressively on the administration’s proposal to improve consumer protection.

Today, seven different agencies have the secondary job of looking out for consumers of financial products and services. Non-banks like mortgage lenders, auto finance companies and payday lenders operate largely in the shadows. Millions of Americans have experienced the failures of this system first hand.

In place of that fragmented and ineffective system, President Obama has called for an independent Consumer Financial Protection Agency. This is not a Democratic idea or a liberal idea. In fact, two years ago it was a Republican idea. The Bush administration’s 2008 Blueprint for a Modernized Financial Regulatory Structure called for a “dedicated business conduct regulator” responsible for consumer and investor protection.

But supporters of the status quo are doing everything they can to kill or weaken this proposal. They have tried to carve loopholes for auto finance companies and payday lenders. They have tried to limit the agency’s ability to enforce the rules it writes. They have even argued that protecting consumers puts banks at risk.

The administration rejects the notion that demanding responsibility, fairness and transparency in consumer financial markets is at odds with “safety and soundness.” The crisis demonstrated clearly that unscrupulous lending is no better for banks than it is for their customers. And as President Obama has made clear, we will oppose every effort to weaken reform at the expense of American families.

Opponents of financial reform have also fought against the administration’s proposal to end, once and for all, the problem of “too big to fail.”

This, too, should not be a partisan debate. We must never again be forced to bail out a financial firm because we lack the tools to shut it down. We must have the ability to let even the largest firms fail — imposing pain on shareholders and creditors, but protecting the broader economy. Most importantly, we must guarantee that the taxpayers never have to foot the bill for Wall Street’s irresponsibility.

Republicans should agree. In a speech at the Oxford Union last fall, the ranking Republican on the Banking Committee, Sen. Richard Shelby (Ala.), forcefully articulated the case for resolution authority. He argued that “we need clear procedures for resolving failure of large financial firms” and noted that “ordinary bankruptcy proceedings would likely be too slow to respond.”

This reform is critical to the future stability of our financial system and our economy. We will not compromise when it comes to ending “too big to fail.” 

As the fight for financial reform moves forward, we face a stark and consequential choice: Will we learn the lessons of the financial crisis and enact comprehensive reform? Or will we let special interests win the day, delaying and chipping away at reform until it no longer represents real change? 

For the benefit of every small business and every family in America, for the safety and soundness of our financial system, and for the competitiveness of American markets, we need financial reform. We should not wait for another financial crisis before we fix a broken system.

Wolin is the deputy secretary of the treasury.