New Rules for the Big Banks

>> President Obama is setting up for another tough battle, this time with big business. He's unveiling plans today to overhaul the nation's financial regulatory system. CBS News Senior White House Correspondent Bill Plante has details for us. Bill, good morning. Bill Plante: Good morning, Maggie. What the President is proposing today doesn't shake things up as much as some people had wanted, but it is still the biggest change in financial oversight in 70 years and it's certain to be controversial. President Obama: We have to make sure that we've got a updated regulatory system that hasn't been significantly changed since the 1930s. Bill Plante: The president wants Congress to give the Federal Reserve Bank power to supervise the largest financial institutions and to take over any company whose failure threatens the economy. He's calling for tougher regulations for financial firms, higher capital requirements and regulation of the new financial instruments known as derivatives. And the president wants a new consumer financial protection agency with the power to supervise banks and credit card companies and to crack down on deceptive practices.

>> I think the Federal Reserve is going to end being the uber-regulator. It is the best positioned among all the regulators to do the best job. Bill Plante: But Mr. Obama will face significant opposition in Congress from Democrats as well as Republicans, some of whom call the increased regulation a risk to the economy.

>> We need smart regulation. We don't necessarily need more regulation. And in fact, I believe that we've had much too much emphasis on government lately and not as much emphasis on people. Bill Plante: The president he knows that passing this will be a heavy lift. Now today, the president also fulfills a campaign promise. He is signing a memorandum this afternoon which orders heath care benefits for federal workers' domestic partners. And that includes same-sex partners. Maggie.

>> CBS's Bill Plante at the White House. Thank you Bill. Joining us now, also from Washington is Christina Romer. She is the Chair of the White Council of Economic Advisors. Dr. Romer, good morning. Dr. Romer: Good morning. Great to be here.

>> Thanks for being here. For the people at home wondering how will this help me? Can you give us a nutshell answer in layman's terms please? Dr. Romer: Absolutely. I think there are two crucial things that we'll do. One, it's going to make our economy, our financial institutions more stable. That is, a big goal of the President, you've seen really a theme the last several weeks of the new foundation sort of coming through this crisis stronger and healthier. Health reform is part of that. Financial regulatory reform is part of that to really make it so that our financial institutions are less risky, more stable. So that's going to be crucial for all of us because we know that financial crises are terrible for the overall economy. And then for individuals, the new consumer financial protection agency is really going to take all of those consumer regulations and put them into one place so that there's one agency whose only job it is is to watch out for consumers. The deceptive practices, transparency, making sure there's a plain vanilla option even when there are more complicated ones. All of that's going to be great for the consumer.

>> But this all comes with a lot of government intervention, which the President said yesterday, is not ideally what he would like to be doing. And that reminded me of when GM, the government took a majority stake in GM and he said that he was a reluctant shareholder. He's talking like somebody whose hands are tied. He sounds like he's being forced to do these things. If he believes that big government is actually a bad thing, why doesn't he at least try less intrusive options which are certainly being offered up? Dr. Romer: The crucial thing is that the status quo can't remain. What we've seen from the --

>> But why not start less aggressively? Dr. Romer: Yeah, I think the truth is we are striking a really appropriate balance. We are not bulldozing the whole system. We're very much starting with the regulatory restructure we have and improving it. The other thing that's important, you know, you mentioned using less intrusive. Well one of the key things that the President's going to be talking about are higher capital requirements. That's a very sensible kind of market-based approach that says let's make sure that the firms making decisions have money on the table so that they don't take excessive risks, so that they are there to absorb the first loses. And that's incredibly important.

>> Dr. Romer, you said it's not a bulldozer, but it is the most sweeping reform in 70 years. How can the consumer feel confident in trusting such a controversial proposal when for example, the President conceded yesterday that unemployment will hit 10 percent when the administration had predicted that if we pass this stimulus, it wouldn't go over 8 percent? Dr. Romer: You know, the crucial thing is the consumer, when you mentioned what may happen to the unemployment rate, one of the crucial things that we know caused the mess that we're in now is lax financial regulation, firms falling through the gap, the fact that we don't have resolution authority now so when we have a big firm like AIG that gets into trouble, we don't have the tools for dealing with it. So the crucial thing is to actually make sure we don't face this kind of crisis again. That's the number one thing that's going to be good for American families and the whole American economy.

>> Certainly everyone is hoping. Christina Romer, thank you so much.

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