WASHINGTON — The Obama administration is no longer insisting on the creation of a stand-alone consumer protection agency, once a central element of the plan to remake regulation of the financial system, in hopes of clearing away obstacles to quick congressional approval.
In opening the door to compromise, officials are making a concession to lawmakers concerned about creating a new bureaucracy, according to congressional and some administration sources.
President Barack Obama’s economic team is now open to housing the consumer regulator inside another agency, such as the Treasury Department, though they still prefer a stand-alone agency. In either case, they are insisting on a regulator with political autonomy and real teeth so it can effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products.
The administration may also have to compromise on Obama’s recent proposal for a rule to limit risky activities at banks by prohibiting them from engaging in many kinds of speculative investments.
Treasury officials are preparing to send Capitol Hill a toughly worded measure that would bar banks from making certain investments that benefit only the firms’ bottom line rather than their customers.
But there is little support among either Democratic or Republican lawmakers for this proposal, known as the “Volcker rule,” and Senate leaders are now closing ranks around legislation that would leave it to banking regulators, rather than the law, to decide which activities to ban.
From the start of the Obama presidency, officials have vowed to put in place new rules and new regulators to prevent a repeat of the abuses that precipitated the financial crisis.
Even as the administration is showing new flexibility, some senior executives in the financial industry have also been coming around, easing some of their intensive lobbying against the regulatory overhaul. These executives are working more closely with Democrats to secure a deal the banks can live with.
After the White House escalated its attacks on Wall Street earlier this year, some executives concluded that swift passage of a regulatory reform bill would move them out the political cross hairs, industry officials said. The adoption of a new bill would also resolve much of the uncertainty about the rules to govern the financial industry, allowing companies to make business decisions with more confidence.
