Calls Resume for Single Banking Regulator
Friday, June 12, 2009
The Obama administration is facing new pressure from key Democratic and Republican lawmakers to centralize banking oversight in a single regulator, a proposal the White House had seriously considered before shelving it as widespread opposition grew.
Sen. Charles E. Schumer (D-N.Y.), a leading voice on financial policy and vice chairman of the Joint Economic Committee, urged Treasury Secretary Timothy F. Geithner in a letter yesterday to propose a single banking regulator and dispense with the alphabet soup of agencies that now oversee banks.
Republicans on the House Financial Services Committee also proposed yesterday that one agency be responsible for bank supervision. They called for stripping existing powers from the Federal Reserve and Federal Deposit Insurance Corp. and merging the Office of Thrift Supervision and Office of the Comptroller of the Currency.
The salvos presaged what could be a massive congressional debate after the Obama administration formally proposes its plan for overhauling financial regulations. An announcement is scheduled for June 17.
While some lawmakers are wary of consolidating power into few agencies as originally favored by top Obama officials, others on Capitol Hill worry the administration isn't planning to take on entrenched interests.
"This is a once-in-a-lifetime opportunity: Be as bold as you can," Schumer said in an interview. "I don't think [Geithner] has to make compromises before the process even begins."
Officials had envisioned an ambitious restructuring of the agencies responsible for overseeing financial regulation. But people familiar with discussions at the White House and Treasury say officials have stepped back from some of their biggest ideas after encountering criticism from lawmakers, regulators and business interests.
For instance, the administration had planned to propose a single banking regulator. Now, officials may seek to eliminate the OTS but leave other agencies in place. Several lawmakers had warned that the original idea was misguided or had long odds of passing.
Top officials had also wanted to merge the Securities and Exchange Commission and Commodity Futures Trading Commission, which have split oversight over the financial markets. But the two agencies fell under the jurisdiction of different committees on Capitol Hill, and neither wanted to give up power. Although the administration has abandoned the idea, Schumer said in the letter that he still sees merit in merging the agencies.
The administration is still looking to grant the Federal Reserve authority to peer into any market and curb risky activities that threaten the global financial system, but senior officials have bowed to concerns about granting the central bank more power and plans to name a council that will work with the Fed. Still on the agenda is the creation of an agency to protect consumers of credit cards and mortgages.
"Retaining multiple regulatory entities preserves the regulatory arbitrage that allows institutions to pick the oversight scheme that benefits them the most, at the expense of consumers and the health of the system overall," Schumer wrote.
Beyond calling for a single banking regulator, the Republicans are breaking with the general approach of the Obama plan in key ways.
The Republican plan calls for scaling back the Fed's role, making it primarily responsible for setting interest rates, and rejects any move to give the Fed or another agency special authority to police the largest financial firms. The Republicans said it is a mistake to single out large firms on the grounds they are too big to fail and should not bail out collapsing companies.
"No longer will financial firms be able to hand their losses off to the taxpayer. Restoring market discipline and getting the government out of the bailout business is critical to helping prevent another crisis," said Rep. Spencer Bachus (Ala.), the top Republican on the House Financial Services Committee.
The Republicans blame the financial crisis on government policies, such as its historical support for mortgage finance companies Fannie Mae and Freddie Mac and emergency aid that propped up failing companies. Republicans said that institutions that cannot survive should be put into bankruptcy. They want to wind down Fannie Mae and Freddie Mac as government-supported firms. The GOP also proposes the creation of a board of officials and experts to monitor the financial system. This board would not have the authority to instruct firms to take specific actions but would report periodically to Congress.
Republicans also want to lessen the power of credit rating agencies -- the private firms that judge how risky securities are.