Obama Calls for Regulation Overhaul

Any talk of new regulation tends to frighten investors and, today, the Obama administration is announcing new plans to empower the Federal Reserve and create new institutions for  systemwide oversight. The S&P 500 has already fallen 3.6% this week, and futures show few signs of improving at the today’s open. 

The main data points today are the Consumer Price Index, which is set to advance 0.3% in May, and the Current Account report. Federal Reserve chairman Ben Bernanke speaks alongside FDIC chairwoman Sheila Bair at 9:00, but the topic is financial literacy and there is no Q&A, so it’s unlikely either official will comment on the financial overhaul.

Data will likely take a backseat to the administration’s plans, which President Barack Obama will announce at 12:50 pm EDT. Most of the details have already been leaked and can be seen here.

“We must act now to restore confidence in the integrity of our financial system,” says an 85-page draft of the proposal. “We must build a new foundation for financial regulation and supervision that is simpler and more effectively enforced, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market.”

Congress is expected to hold its first session on the proposal as early as tomorrow.

“Speed is important,” Obama said Tuesday night in an interview aired on CNBC. “We want to do it right. We want to do it carefully. But we don't want to tilt at windmills. We want to make sure that we're getting the best possible regulatory framework in place so that we're not repeating the mistakes of the past.”

Defending the government’s expanding role in the economy, Obama also said: “Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected.” 

Looking at details of the proposal, the Washington Post summarized: “The administration's plan leans heavily on the Fed, expanding its role as the regulator of the nation's largest banks such as J.P. Morgan Chase and Goldman Sachs to include other giant financial firms, such as the insurance companies American International Group and MetLife.” 

“The agency, which has greater independence from the political process than other regulators, would have broad authority to impose special requirements on those companies, such as mandating that they set aside a larger percentage of their assets against possible losses than smaller firms,” the Post continued. “Such a requirement could limit large companies' appetite for risk, but also their profit and growth.” 

Those in real estate will put special focus on the administration’s plans to simplify the mortgage market.

“One idea highlighted by the administration is to require that lenders offer all customers standard ‘plain vanilla’ loans, such as 30-year, fixed-rate mortgages with streamlined pricing,” the Post reported. “The sale of loans with more complicated terms would be subjected to greater scrutiny by the agency. It could even require that customers who take more complicated loans sign a waiver.”

Here’s a look at the main data points for today:

7:00 ―  The weekly Mortgage Applications Survey showed 30-year interest rates moderate to 5.50% in the week ending June 12, yet demand for loans nonetheless fell 15.8%, led by a drop in refinance activity.

8:30 ― Inflation reports are never ignored but price fluctuations are still taking a back seat to growth data. The Consumer Price Index is expected to gain 0.3% in May after sitting still in April, while core prices are set to increase 0.1%, following a 0.3% increase in April.

8:30 ― The quarterly Current Account report has little impact on equities but surprises in the trade balance can have some impact on the dollar.

9:00 ― Fed Chairman Ben Bernanke and FDIC chairwoman Sheila Bair speak on promoting financial literacy in Washington, DC. No Q&A is scheduled, so don’t expect either official to preempt Obama’s announcement.

12:50 ― President Obama unveils his administration’s proposal to revamp regulation.