Summers: Banks Must Agree To New Regulation
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NEW YORK — A top White House official called on financial institutions to accept new rules in order to help the economic system avoid future "devastating consequences for workers, consumers and taxpayers."
"Financial institutions that have benefited from government support can, should, and must use this moment to think about what they can do for their country – by accepting the necessary regulation to protect the American people," White House chief economic adviser Lawrence Summers said Friday at a conference sponsored by The Economist magazine.
Banks and other financial institutions must accept the Obama administration's push for the proposed Consumer Financial Protection Agency that would oversee mortgages, credit cards and overdraft practices. Summers said it was "a bit rich" for institutions that received billions in taxpayer money to complain that such an agency would inhibit financial innovation – such as those that developed algorithms to maximize the gains from overdraft fees on customers' bounced checks.
Bank of America, JPMorgan Chase, Wells Fargo and other banks recently said they would no longer automatically enroll customers for the costly overdraft protection.
The House Financial Services Committee is overseeing the creation of the consumer protection agency and is expected to approve it next week.
On Friday, Summers commended the same House committee for moving to regulate derivatives a day earlier.
"A return to the status quo is unacceptable," Summers said. Banks must increase capital cushions and accept regulation and not be able to choose their own regulator, "playing one against the other," he added.
After a generation of "accidents" that had "devastating consequences for workers, consumers, and taxpayers" – including the recent financial crisis, the savings and loan problems of the 1990s and the bursting of the dot-com bubble earlier this decade – banks should accept new regulations, Summers said.
"Wall Street was no small part of the cause of the crisis and Wall Street needs to be part of the solution," he said.
Regulators also must have more tools to deal with institutions that fail, and not be stuck between putting up billions in taxpayer money or allowing one interconnected firm's collapse to bring down the entire financial system.
Summers reminded his audience of dark-suited men and women that while the financial sector seems to be improving, average Americans are suffering from rising unemployment and emergency government programs are still needed.
"There is a gulf as large as any I can remember in the recent return to good fortune for many in the financial sector and the fortunes of the broad American middle class," he said. "It is crucially important to avoid premature withdrawal of expansionary measures."
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TALI ARBEL 10/16/09 03:58 PM ET Associated Press