Confronting the risks posed by the shadow banking system might require Congress to pass legislation, President Obama suggested Monday.
Speaking at the White House on Monday after meeting with top U.S. financial regulators, Obama said the discussion touched on shadow banks, which are financial institutions outside the traditional banking system, and how they could pose risks to financial stability that weren’t addressed in new Wall Street rules he has signed into law.
“And one of our projects is to make sure that we are covering some of those potential gaps,” Obama said. “We may need, at some point, help from Congress to do that.”
Notably, the regulators Obama met with Monday, including Treasury Secretary Jack Lew and Federal Reserve Chairwoman Janet Yellen, are members of a new council created by Obama’s 2010 banking reform law to discover threats that may arise outside the banking system.
Obama said the council, known as the Financial Stability Oversight Council, has worked “very effectively” in the “meantime.” The council has the authority to label any company a systemic threat to the financial system and subject it to additional supervision and regulation. Obama’s comments, however, suggested that those powers may not be sufficient.
The council is working on determining whether rules are needed for the asset management sector, which includes companies such as BlackRock and Vanguard. Separately, the Federal Reserve and other regulators are looking for ways to reduce risks in shadow banking using their existing authorities.
Obama also called for the Securities and Exchange Commission to finalize regulations on compensation for executives as well as for improving cybersecurity.
In his brief remarks, Obama said the 2010 Dodd-Frank financial reform law has “worked.” The law has come under fire from Republicans arguing that the new regulations have crimped growth as well as from Democrats, especially presidential candidate Bernie Sanders, who have warned that it did not go far enough to curb risk-taking by banks.
Obama warned that “when you have lax regulation on Wall Street — eventually, it migrates to Main Street,” and he called on Congress to increase funding for regulatory agencies.
