Obama Asks Congress to Overhaul Financial Accountability

Using the first anniversary of the collapse of Lehman Brothers as a backdrop, President Barack Obama delivered a speech earlier today at Federal Hall in Washington, highlighting his intention to ask Congress to increase government oversight in the US banking industry.

“We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses,” Obama said to the audience of top banking executives and federal regulators.

In his most direct language to date, the President made it clear that he believes that despite billions of dollars provided by taxpayers to keep the banking industry from total collapse, the major banks continue to engage in risky practices.

“Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them,” chastised Obama taking dead aim at recent reports that the banks are once again chasing risky investments in search of greater profits and higher bonuses. However, unless Obama can persuade Congress to implement a slew of changes, chastising is about all the President can do without the nation’s lawmakers taking up his cause.

Highlights of Obama’s New Proposals

1. New Federal Reserve Oversight

Early into his mandate, Obama – together with US Treasury Secretary Timothy Geithner – first proposed additional oversight capabilities for the Federal Reserve. Chief amongst these new responsibilities would be the power to review the risk the actions of large financial firms place on the entire financial system as a whole. Presumably, this means that the Fed would also be able to force independent banks to alter their business practices should the Fed deem that they represent an unacceptable risk.

2. Increase Cash Reserve and Minimum Capitalization Requirements

This is aimed squarely at the institutions who helped precipitate the credit crisis when their highly-leveraged derivates collapsed, giving rise to a new and ubiquitous term, “toxic assets”. Geithner has already sent out feelers on this front, asking the Group of 20 nations to also increase minimum capitalization levels all G20 banks must maintain, with the goal of reducing the ability of financial firms to over-leverage themselves. The administration is ratcheting up the pressure on this and wants to have new requirements in place within two years.

3. New Agency to Oversee Marketing of Financial Products to Consumers

Of all the changes expected to be put forward for Congress’ approval, the creation of a new government agency charged with reviewing and regulating the manner in which financial firms market products to retail-level consumers, could be the most difficult to push through. Industry resistance has been considerable and lobbying to counter this move in particular, has been growing in intensity.

As you can imagine, none of these proposals are being welcomed by the industry, but I find the extreme resistance to this item in particular to be the most telling. Naturally, the banking industry wants as little direct government involvement as possible, but of all the proposals, this is the only one specifically aimed at protecting the consumer as the others have more to do with operational practices and corporate-level oversight.

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