Obama Administration Steps Up Financial Reform Drive

By | June 4, 2009

The Obama administration stepped up its push for tougher bank and financial firm rules Thursday, scheduling a briefing for lobbyists, with a focus on insurance oversight, and sending a top regulator to a Senate hearing to discuss plans for regulating derivatives markets.

The briefing, expected later on Thursday, was the latest in a series. Some lobbyists expected generalities and trial balloons, but others said it could produce more specifics, possibly widening beyond a narrow focus on insurance regulation.

“It feels to me like a bit of a roll-out activity, so I’m assuming we’ll get a little more information,” said Leigh Ann Pusey, president of the American Insurance Association.

President Barack Obama wants to enact new laws by the end of the year aimed at preventing a recurrence of the severe financial crisis now hammering economies worldwide.

Congressional Democrats largely share that objective, although progress toward it was expected to be much swifter in the House, where Democrats are in firm control, than in the Senate where they are less dominant.

The administration’s latest push comes ahead of the expected release in two weeks of proposals targeting not only banks, but hedge funds, executive pay, the securitization industry, and the over-the-counter derivatives markets.

The mid-June package is likely to come in the form of a concept paper, rather than formal legislative language, said Floyd Stoner, executive director of congressional relations and public policy at the American Bankers Association.

It was unclear whether insurance reform would be included. The administration was said to be examining approaches to establishing a U.S. insurance regulator. The nation’s 6,000 insurers are regulated by state and territorial governments.

The insurance industry is still deeply divided on the idea of federal regulation. It is favored by large life insurers and some large property-casualty insurers because they could save money by answering to one regulator instead of more than 50.

But smaller insurers and some other segments of the industry oppose the idea or have not taken a clear position.

Some consumer activists have said federal oversight could bring higher insurance rates and weaker consumer protections.

GEITHNER HOSTS DINNER

Treasury Secretary Timothy Geithner hosted a dinner for lawmakers Wednesday evening on financial regulation reform.

He told lawmakers at the event that he does not plan to propose merging the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), according to an industry source familiar with the meeting.

That idea has been debated for months, but it has gradually lost support amid turf battles on Capitol Hill between congressional committees that oversee the two agencies.

Among the dinner guests was Representative Barney Frank, who earlier described aspects of the administration’s reforms package in an interview with Reuters.

Frank said some consolidation of banking regulators was “a possibility.” But he said an SEC-CFTC merger was off the table as far as he was concerned. His committee oversees the SEC. The House Agriculture Committee oversees the CFTC. Neither wants to lose its jurisdiction.

On Thursday morning, CFTC Chairman Gary Gensler testified before the Senate Agriculture Committee and gave more details on plans to regulate derivatives such as credit default swaps, which are widely blamed for aggravating the credit crisis.

Gensler suggested two sets of rules, one covering markets, including regulated exchanges, electronic trading and clearinghouses, and the other governing dealers.

At stake in the debate over derivatives are highly profitable businesses for major banks such as JPMorgan Chase , Goldman Sachs and Citigroup, as well as growth opportunities for exchange groups CME Group Inc and IntercontinentalExchange Inc.

(Additional reporting by Patrick Rucker and Charles Abbott)

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