If Congress fails to revamp the financial regulatory system, it runs the risk that the kind of crisis that occurred a year ago will happen again, according an official who speaks for President Obama.
White House Press Secretary Robert Gibbs talked about financial regulatory reform Thursday, during a regular press briefing.
Neil Barofsky, the inspector general for the Troubled Asset Relief Program, suggested earlier this week that the financial system could be in even more trouble than it was in mid-2008, because the crisis forced some struggling financial services companies to merge.
Some companies are now even more “too big to fail” than they were before the crisis started, and the government may have increased the temptation to take excessive risk, by showing executives of the financial giants that the government will bail their companies out, Barofsky said.
“Does the administration share Mr. Barofsky’s view?” a reporter asked.
Gibbs started by talking about the Obama administration’s requests for broader authority.
Federal regulators need the authority “to break up bigger entities and close down parts of them and deal with the problems that exist,” Gibbs said. “We certainly have sought that in regulatory reform to address this concept of too big to fail and, again, want to make progress on those issues during this Congress.”
When pressed about whether the financial system is now more vulnerable than it was in mid-2008, Gibbs said, “I don’t agree with that. I think we are in a different position than we were September 14th or September 15th of last year.”
But “I don’t doubt that without new rules for the road there is the potential to go back to what we had and forget what we went through in the financial system,” Gibbs said. “That’s why the president is working and pushing so hard for regulatory reform.
Gibbs also talked about the importance of the House Financial Services Committee voting Thursday to approve H.R. 3126, the bill that would create a Consumer Financial Protection Agency.
Before the committee approved the bill, it added an amendment making it clear that the CFPA would have no authority over insurance products, including banking-related products such as credit life insurance.
“We think that regulatory reform needs to happen this year, and we think a central part of regulatory reform is a Consumer Finance Protection Agency that looks out for, in all of this, normal, everyday consumers,” Gibbs said during the press briefing. “It took a big step forward in the House committee today.”
But “make no mistake, there are big special interest forces aligned against ensuring that consumers have the voice they need,” Gibbs said. “The president will work every day to — on the side of those consumers to ensure that those special interests don’t have the last say on important financial regulatory reform.”
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, and Sen. Richard Shelby, R-Ala., the highest ranking Republican on the committee, “are working on a bipartisan basis to get financial regulatory reform through the Senate,” Gibbs said.
“I wouldn’t argue with you that the House is on a bit faster pace,” Gibbs said. “But I think Senator Dodd and Senator Shelby are also working quickly and expeditiously to ensure financial regulatory reform is something that happens and is written into law. We can’t afford … to go back to a regulatory system that we had in place that led to the type of financial collapse that required the taxpayers to become involved.”