Source: The Washington Post

By David Cho and Binyamin Appelbaum
Washington Post Staff Writer
Friday, January 22, 2010

For much of last year, Paul Volcker wandered the country arguing for tougher restraints on big banks while the Obama administration pursued a more moderate regulatory agenda driven by Treasury Secretary Timothy F. Geithner.

> snip

Senior administration officials say there is now broad consensus within the White House and the Treasury for the plan advanced by Volcker, who leads an outside economic advisory group for the president. At its heart, Volcker's plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.

Advocates of Volcker's ideas were delighted. "This is a complete change of policy that was announced today. It's a fundamental shift," said Simon Johnson, a professor at MIT's Sloan School of Management. "This is coming from the political side. There are classic signs of major policy changes under pressure . . . but in a new and much more sensible direction."

Industry officials, however, said they were startled and disheartened that Geithner was overruled, in part because they supported the more moderate approach Geithner proposed last year.

Read more: http://www.washingtonpost.com/wp-dyn/conte...

---

Insiders are saying that while Geithner may be losing power, this shift to Volcker is more because Obama needs him to bolster his new 'get tough' stance against the banks. Volcker is apparently respected by both parties so the WH is hoping that will help Congress in approving these policies.