Obama: Tighten reins on banks

February 26, 2009 at 12:00a.m.

WASHINGTON (AP) — After devoting money and time in search of a rescue for the ailing banking sector, President Barack Obama on Wednesday demanded tough new regulations to keep financial institutions in check and avoid future Wall Street meltdowns.

Obama pressed key lawmakers to overhaul the nation’s financial regulatory scheme to restore “accountability, transparency and trust in our financial markets.” He specifically called for a system that would monitor the risks that institutions can take.

“We can no longer sustain 21st-century markets with 20th-century regulation,” Obama said after meeting with Treasury Secretary Timothy Geithner and the chairmen and top Republicans of the two House and Senate committees charged with writing new regulatory legislation.

Obama leveled a broad indictment of the industry, saying the current financial crisis occurred when “Wall Street wrongly presumed the markets would continuously rise and traded in complex financial products without fully evaluating their risks.” But he also blamed government regulators for not adequately protecting consumers.

In calling for a sweeping regulatory change, Obama is providing ballast to his still-unfinished effort to shore up the ailing industry. As such, he is taking both a policy and a political step designed to assure the public that bailing out banks is not his only prescription for the industry.

Members of Congress, echoing public sentiment, have been wary, if not hostile, toward the $700 billion the government is spending to infuse capital into banks in hope of loosening credit. In his address to a joint session of Congress on Tuesday night, Obama warned that the rescue effort could cost even more.

The president offered no specific regulatory framework Wednesday but called for a series of “core principles.” Among them are consumer protections, accountability for executives and a regulatory plan that covers a broad series of financial transactions that have escaped regulation in the past.

“Let me be clear: The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism,” Obama said. “Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong.”