Obama allies target bank reform after health care win

Fresh from a landmark victory with Congress passing health care reform, the Obama administration set its sights Monday on sweeping reforms of Wall Street's "too-big-to-fail" banks.

Treasury Secretary Timothy Geithner urged lawmakers to engage in the "just war" of reforming the banking sector, as a key Senate committee voted to reform the same banks that pushed the global economy to the verge of collapse.

Geithner told the American Enterprise Institute think-tank that "financial reform is not a war of choice; it is a war of necessity" as the reforms cleared the Senate banking committee by a 13-10 vote.

The banking committee's Democratic chairman, Senator Christopher Dodd, vowed the bill -- which comes in the wake of a massive financial meltdown -- would become law this year.

Obama congratulated Dodd, who authored the package, for making progress on financial regulatory reform.

"We are now one step closer to passing real financial reform that will bring oversight and accountability to our financial system and help ensure that the American taxpayer never again pays the price for the irresponsibility of our largest banks and financial institutions," he said.

Obama vowed to continue to fight to strengthen the bill as it moves to the full Senate in the coming weeks.

Lawmakers' ability to pass the measures, which would create a powerful consumer financial protection agency and curb risky investments, would be a "test of our capacity as a nation to deal with complex and consequential problems," Geithner said.

"If we fail to act, America will lose this opportunity to set the global agenda."

Unlike other legislative items on the president's desk -- notably immigration reform and climate change -- banking reform is largely uncontroversial among ordinary Americas, making it an attractive target for action.

In an ABC World News poll released Monday, 77 percent of Americans said the financial industry had not done enough to atone for its role in the economic crisis.

More than 80 percent of the 1,005 adults polled said banks and credit card companies should cut interest rates and simplify paperwork.

Although Dodd's proposals have yet to get bipartisan backing because long-running talks with his Republican interlocutor Bob Corker collapsed, there are still high hopes a deal can be clinched with some Republican support.

But with Democrats expected to paint Republican opposition to health care reforms as pro-industry, Republicans may be reluctant to encourage that narrative by casting their lot with despised bankers, according to Douglas Elliot of The Brookings Institution.

"The politics are very different than for health care reform. The public is demanding action, although the area is too technical for them to know exactly what they want," he said.

"It is not clear that there are 41 senators who would be willing to stand up and filibuster a bill when that action would be portrayed as siding with the bankers."

The package's highlights include creating a powerful committee with the power to break up "too-big-to-fail" banks and other financial institutions.

The bill would also clamp down on hedge funds and other risky investment instruments accused of fueling the crisis, and give shareholders a say on big executive bonuses.

It would limit the Federal Reserve's oversight to banks worth more than 50 billion dollars in assets and strip away its role in supervising state-chartered banks.

The legislation could also see the Fed's purview reduced from around 6,000 banks today to as few as 40 banks under the new rules.