The Obama administration waded into negotiations over Wall Street regulations Wednesday, calling for limits on the size of financial institutions and insisting that consumer protections remain a central objective of legislative attempts to rein in the industry.
In the Senate, talks continued on how to create a consumer protection entity. Republicans pressing for a watered-down consumer agency even as they voiced optimism that they could reach a deal with Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, within a week.
The Treasury Department circulated proposed legislation that would prevent commercial banks from carrying out high-risk trades and that would restrict the size of financial firms to holdings no greater than 10 percent of the entire financial industry's liabilities. That restriction would apply only to firms that grow through a merger or an acquisition.
Consumer protections and doing away with financial firms deemed too big to fail are two of the key elements of the legislative efforts to overhaul the rules that govern Wall Street and prevent a recurrence of the 2008 financial crisis. In reiterating its points, the administration was making certain its views were being heard in the Senate at a sensitive time in negotiations between Dodd and Sen. Bob Corker, R-Tenn.
The plan reiterated a proposal that the administration staked out in January. The measure is known as the Volcker Rule, after former Federal Reserve Chairman Paul Volcker, a vigorous proponent of limiting proprietary trading by commercial banks. Volcker has been advising the Obama administration.
Corker questioned the administration's timing. "It is not helpful to the process for the administration to be putting out positions right now on financial regs, especially as it relates to the Volcker rule," he told The Associated Press. "It's just not helpful."
Treasury waited until after the markets closed Wednesday to release details of the Volcker plan. When it announced the outline of its proposal in January, the administration spooked U.S. markets, contributing to several days of falling stock prices.
Treasury Secretary Timothy Geithner and White House senior adviser Valerie Jarrett met with about 30 consumer and labor advocates to assure them that the administration was not backing away from demanding strong consumer protections in the bill.
The overhaul plan the administration put forward last year called for a freestanding Consumer Financial Protection Agency. The legislation that passed the House included such an agency although many in the industry oppose it as another layer of regulation.
Corker and Dodd had proposed housing an autonomous consumer agency inside the Federal Reserve, an idea that has been panned by liberal groups. It also received a skeptical reception from other Republicans and Democrats on the Banking Committee, including the top Republican on the panel, Sen. Richard Shelby of Alabama.
House Financial Services Committee Chairman Barney Frank, D-Mass., called the proposal "a joke." Many consumer groups believe the central bank did a poor job in protecting consumers in the lead up to the financial crisis.
On Wednesday, however, Shelby and Corker offered Dodd a revised plan with a consumer agency that had less independence to write its own regulations. Details were not available, but the offer came after Shelby, Corker and two other banking committee members — Sens. Judd Gregg and Mike Crapo — met with Senate Republican leader Mitch McConnell on Tuesday evening to decide how to proceed. Gregg has insisted that any consumer agency cannot be autonomous, a key condition for Dodd.
"The right concerns that Republicans have are being addressed, and those on the left are being addressed," Corker said. "And we have a chance to be in a good place with this."
Geithner insisted on an independent entity in his meeting with consumer advocates. "That means a dedicated authority with the independence and capacity it needs to be accountable," the Treasury Department said in a statement.
Associated Press writer Martin Crutsinger contributed to this report.
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