US Health-Care Debate Won't Slow Financial Overhaul -Summers

WASHINGTON -- The health-care debate on Capitol Hill won't keep U.S. lawmakers from moving forward on efforts to modernize the nation's finance rules, President Barack Obama's top economic adviser said Friday, expressing confidence that the financial overhaul is on track.

"We believe that the banking and financial service committees in the Senate can and will move forward on this financial regulatory issue even as health care is being debated," said National Economic Council Director Lawrence Summers in a briefing with reporters. "We believe that it's very important to pass financial regulatory reform this year."

However, Summers also acknowledged that the financial-regulatory proposal the Obama administration unveiled earlier this year is likely to be modified and changed as it moves through the political process.

Despite Summers' optimism, remaking financial services regulations has always proven difficult, and bickering among regulators has raised doubts that the administration can stir up enough support for the ambitious and highly controversial plan.

One proposal in particular that is likely to be a point of debate this autumn is the administration's plan to make the Federal Reserve the nation's so-called systemic-risk regulator. Under the plan, the central bank would be in charge of monitoring large, interconnected companies to ensure that they don't pose a threat to the entire financial system. Additionally, a council of regulators would help coordinate and collect information on systemic risks.

Still, lawmakers remain skeptical about giving the central bank more power. While proponents applaud the Fed for taking extraordinary efforts to stem the financial crisis, critics argue that the central bank has failed to take strong enough measures to protect consumers and prevent bank practices in the run-up to the financial meltdown.

The Obama administration sees the Fed "as the natural place" for systemic-risk regulation. "But systemic-risk regulation has a number of elements," said Summers. "It goes to the regulation of individual institutions, a number of threats to future stability; it goes to key features of the financial landscape.

"Just how the Fed will interact with other regulators, just precisely what the configuration will be, is obviously going to be a subject of discussion," Summers continued.

Summers briefed reporters ahead of the one-year anniversary of Lehman Brothers Holdings Inc.'s collapse, which sparked a panic in financial markets around the globe and triggered fears that the recession would turn into a depression.

The U.S. economy has made a clear transition from rescue mode to sustained recovery, said Summers, giving credit to the federal government's stimulus and market liquidity programs.

"We have moved back from the brink of financial catastrophe," he said. "That is not, in our judgment, an accident.

"More rapid action really appears to have laid ground for a transition from rescue to recovery," he continued.

Still, Summers argued that Congress must move this year to pass new finance laws in order to better prevent against future crises.

"Financial crises have been too large a feature of our economic landscape," said Summers.

Meanwhile, the Obama administration is preparing to host a meeting of leaders from the Group of 20 nations in Pittsburgh later this month, against the backdrop of a weak dollar and as international officials challenge the greenback's status as the world's reserve currency.

Summers wouldn't comment about the dollar specifically; that is a topic left to the Treasury secretary to discuss.

Still, he added that the administration will be assuring that the U.S. has a solid plan for managing its finances.

"I will say that I think that what is crucial to the United States and crucial for the health of the United States is that we assure that there are strong fundamentals for our economy," Summers said.

He suggested that the administration has aimed to put the economy on solid ground by making way for a firm recovery, emphasizing the Fed's independence and stressing the importance of a strong currency.