President Obama said his Administration's proposals for financial-regulatory reform are meant to promote market innovation and long-term economic health without allowing for abuse.

The Administration’s proposals need to be implemented quickly, senior Administration officials said Tuesday evening in a discussion of the plans that include abolishing the Office of Thrift Supervision and creation of a financial consumer-protection agency.

An official said that the proposals would be sent to Capitol Hill imminently, adding that “the costs of inaction are apparent.” Indeed, the Administration released more details on the proposal to Congress with the distribution of an 85-page white paper.  See the paper at the bottom of this story.

President Obama stressed in his Wednesday announcement of the plans that the changes were intended to bolster the free markets, not to override them.

"In these efforts, we seek a careful balance," the President said. "I have always been a strong believer in the power of the free market. It has been and will remain the engine of America's progress -- the source of prosperity that’s unrivaled in history. I believe that jobs are best created not by government, but by businesses and entrepreneurs who are willing to take a risk on a good idea. I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still make this nation the envy of the world."

Much of the information about the proposals and the Administration’s five key elements to reform had already come out.

Those five elements are:
--Strong oversight of financial firms.
--Strengthening the regulation of core markets and infrastructure.
--Strengthen consumer protection.
--Ensure the government has the tools to effectively manage financial crises.
--Ensure high standards, not just in the U.S. but also globally.

The Office of Thrift Supervision will be abolished and taken under the Office of the Comptroller of the Currency, which will be renamed the “National Bank Supervisor,” an official said. That official added that the thrift charter would be eliminated to “eliminated the possibility for arbitrage between federal charters.”

The officials said a financial-services oversight council would be created, and chaired by the Treasury Department. They said firms would face higher capital requirements and higher scrutiny. The Federal Reserve is slated to serve as the supervisor at the holding-company level.

Also, there would be a “fundamental reassessment of the design and structure of regulatory capital requirements.” Hedge funds and other private pools of capital would be regulated.

The Administration is seeking “appropriate” regulation of derivatives, credit-default swaps and other securities, and wants to make sure the securities “are not marketed incorrectly to unsophisticated parties.”It's also calling for “a new, strong, independent agency with full authority to protect consumers from unfair practices.”

The consumer agency would not have authority over products regulated by the Securities and Exchange Commission, but instead the SEC and that agency would coordinate, which the Administration anticipates “will keep both agencies strong and focused on their core mission.”

All big firms would have to have a plan for orderly resolution to “reduce the impact of failure,” an official said.

Also, the U.S. will work “to make sure there are high standards, not just in the United States but globally,” the official said, adding that the government would continue to work with the G-20, Basel committee and the entire international community to make that happen.

These changes will "require regulators to look not only at the safety and soundness of individual institutions, but also -- for the first time -- at the stability of the financial system as a whole," the President said. "One of the reasons this crisis could take place is that while many agencies and regulators were responsible for overseeing individual financial firms and their subsidiaries, no one was responsible for protecting the whole system from the kinds of risks that tied these firms to one another."

Officials said they “have not done a detailed cost estimate” of the changes.

Congressional leaders seemed to be on board with the proposals.

Speaker of the House Nancy Pelosi (D-Calif.) said, "President Obama’s proposed reforms of our financial system will help ensure smart oversight of a financial system that spun out of control. The forward-looking plan will help prevent uncontrolled and unchecked market risk-taking, protect Americans who are saving for a child’s college education, for retirement, or for a rainy day, and move us closer toward avoiding a catastrophic financial markets collapse in the future."

Congressional Republicans and business groups were skeptical.

The plan "unnecessarily adds new layers of regulation and does not provide comprehensive reform to the current broken system," the U.S. Chamber of Commerce said in a statement.

And Rep. Scott Garrett (R-N.J.) issued a statement saying, "the President's plan runs the risk of sending the message to the market that the US government will continue to rescue "too big to fail" companies.  This is precisely the opposite of what we should be doing:  we should make it clear that no business, no matter how big or connected, is implicitly backed by U.S. taxpayers."

Still, with Democrats solidly in control of the House and Senate, the Administration's proposals look likely to go through, at least in large part.

White Paper