Obama's pro-consumers stance roils US bankers

However, the banking industry — which says it stands to lose billions of dollars — is bracing for a fight as the administration’s plan to overhaul the way the industry is regulated heads to Capitol Hill.

Banks “are really dumbfounded by the scope of this agency,” Edward L Yingling, President of American Bankers Association, said. “It’s not like the current regulators don’t have all the authority they need. You don’t have to blow up the system.” 

The Consumer Financial Protection Agency is the brainchild of Elizabeth Warren. She argues that banking regulators have an inherent conflict of interest between ensuring the safety and soundness of institutions and protecting consumers.

The agency, would be empowered to tell banks to tidy up their offerings and make sure consumers have the information they need to make sound financial decisions, while being protected from scams.

It could, among other things, dictate standards for some products before banks could bring them to market, and push banks to favour plain vanilla loans over more exotic home loans, which could be required to carry warnings. Unfair terms and practices among credit card issuers would also be weeded out.

Elizabeth Warren said the new agency could have implications beyond consumer protection. Protecting consumers from risky products ultimately protects the entire financial system, she further argued.

Fed reach resented

Meanwhile, senior lawmakers expressed reservations about one of the plan’s central elements — to broadly expand the reach of the Federal Reserve to regulate financial risk across the entire system.

Administration officials said much of the proposal would not require Congressional action and would be adopted by regulators. These include raising the amount of financial cushion that institutions must hold against losses, setting new conflict of interest rules for credit rating agencies and imposing new requirements that banks hold on their own books a percentage of the mortgages they issue to discourage the marketing of abusive or ill-suited loans. But the most significant elements would require new laws.

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