Oct. 19 (Bloomberg) -- Obama administration advisers said U.S. banks bailed out with taxpayer funds have responsibility to support the president’s effort to overhaul the rules for Wall Street and avoid future financial crises.

White House officials say they are frustrated that major financial firms are fighting President Barack Obama on the regulatory overhaul after taxpayer bailouts helped firms restore profits and near-record compensation for executives.

Their anger is directed even at companies such as New York- based JPMorgan Chase & Co. and Goldman Sachs Group Inc. that have paid back their government assistance and last week reported a surge in third-quarter earnings.

“The American people have a right to be frustrated and angry,” Chief of Staff Rahm Emanuel said on CNN’s “State of the Union” yesterday. Banks receiving aid are “literally going and fighting the very type of regulations and reforms that are necessary to prevent, again, a crisis like this happening.”

The issue, administration officials said, is the banking industry is generally on sound footing because of government help, and lobbying against Obama’s regulatory plans goes against the nation’s long-term interest.

In interviews, speeches and statements, they are highlighting what they say is a disconnect between Wall Street and the rest of the country: while some big banks report compensation plans and profits at pre-crisis levels, the unemployment rate rose to 9.8 percent last month and home foreclosures jumped 29.2 percent from a year earlier.

The tougher message is being repeated from the president on down.

‘Firm Rules’

Now is the time for “firm rules of the road so that banks can’t game the system and the financial crisis on Wall Street doesn’t end up hurting folks on Main Street,” Obama said Oct. 15 at a Democratic Party fundraiser in San Francisco.

Lawrence Summers, director of Obama’s National Economic Council, reinforced the theme Oct. 16 in New York.

“There is no financial institution that exists today that is not the direct or indirect beneficiary of massive taxpayer support for the financial system,” Summers said in remarks to a conference sponsored by the Economist magazine.

On yesterday’s talk shows, advisers sought to show the bankers had an obligation after receiving taxpayer assistance when the credit markets seized up.

“They have responsibilities,” senior adviser David Axelrod said on ABC’s “This Week.” “They ought to express them by increasing lending, which is what we need right now, and by standing down.”

Obama Renews Push

Obama is renewing his push to redo financial industry regulations by the end of the year. Many of his proposals, particularly creation of a Consumer Financial Protection Agency, are facing stiff industry opposition.

Groups led by the Financial Services Roundtable and American Bankers Association, both based in Washington, urged Congress in July to scrap the consumer agency, saying creation of a new regulator would cut consumer access to credit.

In his daily briefing today, White House press secretary Robert Gibbs reiterated the administration’s call for banks to increase lending and indicated that the president will continue to strike a more populist tone.

Reminder to Banks

Obama “won’t hesitate” to remind banks and Wall Street that they need to guard against “the type of behavior that got us into the problems that we faced a little more than a year ago,” Gibbs said.

“The American people went to extraordinary lengths” to ensure that the financial industry and the U.S. economy didn’t collapse, he said.

Goldman Sachs Chairman and Chief Executive Officer Lloyd Blankfein said he didn’t expect a “backlash” when he accepted the government funds.

“Had I known it was as pregnant with this kind of potential for backlash then of course I would not have liked it,” Blankfein said Oct. 16 at a Fortune magazine breakfast in New York.

“We are firm believers in effective regulation and believe that it is systemically important to have a regulatory framework which ensures stability of the financial system,” Goldman Sachs spokesman Lucas van Praag said.

‘Political Agendas’

Joseph Evangelisti, spokesman for JPMorgan, referred to comments Chairman and CEO Jamie Dimon made in his letter to shareholders, in which he said that the extent of the problems made it clear that “rules and regulations must be completely overhauled.” Dimon also said that new policies should be “grounded in a thorough analysis of what happened” and that “political agendas or simplistic views will not serve us well.”

The mounting frustration about pushback from the industry came the same week that the Dow Jones Industrial Average climbed above 10,000 for the first time in a year and firms including JPMorgan and New York-based Citigroup Inc. reported third- quarter earnings that beat analyst estimates.

Administration officials say they recognize a healthy banking sector is critical to the economic recovery and that they’re limited in their ability to penalize the firms, particularly those that no longer owe the government money.

Executive Compensation

The most politically volatile issue is executive compensation. Obama has said some resistance to his agenda stems from resentment about expanding government involvement in the private sector, including bank bailouts. Reports about rising profits, executive salaries and bonuses following on the government rescue, may add to voter dissatisfaction.

“Bonuses are offensive,” Axelrod said on ABC. “You’ve seen a lot of firms go to stock rather than cash, so at least people have a stake in the success of their company.”

Citigroup last week reported a $101 million third-quarter profit as it slowed the pace of building reserves for future loan defaults. On a per-share basis, the bank had a loss of 27 cents because of a charge related to the exchange of preferred shares into common stock.

Citigroup, JPMorgan Chase and San Francisco-based Wells Fargo & Co. also asked regulators for a reprieve from meeting higher capital requirements taking effect next year, arguing that lending and the economic recovery would be harmed.

Goldman, JPMorgan

Goldman Sachs, which repaid $10 billion it received from the U.S. Treasury last year, also reported a surge in third- quarter profit. The company has set aside $16.7 billion to pay employees so far this year, enough to pay each worker $527,192 for the period.

JPMorgan, which repaid $25 billion of U.S. rescue funds in June, said that its profit surged sevenfold in the quarter, to $3.59 billion, on higher investment-banking revenue. The company, which is the second biggest bank by assets, set aside $8.79 billion for compensation and benefits for its investment- bank employees in the first nine months of 2009, enough to pay $353,834 to each.

Administration officials have noted the appointment of Kenneth Feinberg to oversee compensation plans at the top firms that haven’t repaid the U.S. They also cite Obama’s support for giving shareholders a non-binding say on compensation.

Feinberg’s compensation reviews for companies including Charlotte, North Carolina-based Bank of America Corp. and Citigroup, each of which got $45 billion in government aid, are expected as early as this week.

He’s already advised Bank of America Chief Executive Officer Kenneth Lewis to forego his 2009 salary and bonus. Bank of America, the biggest U.S. lender, posted a $1 billion third- quarter loss last week.

Citigroup announced on Oct. 9 the sale of its Phibro LLC energy-trading unit, a decision made to avoid a potential showdown with Feinberg over a $100 million pay package for the unit’s CEO, Andrew Hall.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

Last Updated: October 19, 2009 15:01 EDT