NEW YORK (CNNMoney.com) – President Obama on Wednesday will finally lift the curtain on his long-anticipated plan to reorder how banks and other firms are regulated in the hope of preventing another financial collapse.
The far-reaching effort will include a proposal to get rid of the embattled Office of Thrift Supervision and merge it with the Office of the Comptroller of the Currency, a senior administration official said Tuesday evening.
The OTS has been on the hot seat for months for its role as the overseer of American International Group and failed lenders IndyMac and Washington Mutual. The comptroller's office is a Treasury Department bureau that regulates national banks.
Obama will also call for the creation of a council of regulators to work alongside the Federal Reserve to monitor risk in the financial system, the official said. The Treasury secretary would chair the council.
In addition, Obama will propose the establishment of a new watchdog agency that would aim to protect consumers from deceptive or dangerous mortgages, credit cards and other financial products.
The new consumer agency would take on some powers that currently reside with other regulators like the Fed. It will also have the power to make rules and enact them, as well as the ability to inspect "banking and nonbanking" firms, the official said.
"It's critical we act now. We can't afford to wait," the official said.
"We can't afford to let our financial system continue to operate under a system that is inadequate."
Obama is expected to spell out the full plan on Wednesday afternoon.
Most of the proposals will have to be approved by Congress, which has its own ideas about reforming the financial regulatory structure.
Lawmakers have begun hearings on the issue of regulatory reform, but final legislative passage could be a lengthy process, veteran Hill watchers say.
Securities and derivatives also on agenda
The White House also aims to tighten up supervision of the securitization markets, requiring firms that originate a security to keep 5% of the "securitized exposure." That means whoever created the financial product would still hold a piece of it, even as it got resold, and would have some interest in its ultimate performance.
The proposal will call for the regulation of all over-the-counter derivatives, including the kind of credit default swaps that led to the collapse of AIG. In addition, officials want to make sure that such products aren't marketed to "unsophisticated" investors.
The Obama plan would address the conflicts of interest that occur when financial firms work with rating agencies to get a golden seal of approval on a financial product.
Rating agencies have been blamed for exacerbating the financial crisis for giving top ratings to bad financial products. The official speaking Tuesday did not offer details as to how rating agency oversight might be toughened.
The Federal Deposit of Insurance Corp. could get more power to take over and unwind financial companies, beyond banks, that are in deep trouble. The White House will propose to arm "government with tools to manage the financial crisis," the official said.
Updated: 8:07 p.m.