Bank Regulators Resist Reform
Wednesday, August 5, 2009
The nation's banking regulators are defying pressure from the Obama administration to line up in support of key proposed reforms, testifying before Congress on Tuesday that elements of the plan would actually weaken oversight of the financial industry.
Treasury Secretary Timothy F. Geithner summoned the heads of half a dozen agencies for a caustic scolding Friday and told them they were interfering unacceptably in a political process, according to people familiar with the meeting.
The warning, however, had no discernible impact on testimony Tuesday, as four of the regulators who were reprimanded told the Senate Banking Committee they had particular concerns about a centerpiece of the plan, the proposed creation of a new agency to protect consumers of bank products, including mortgages and credit cards.
The resistance comes as progress has stalled on other key administration initiatives, notably climate change and health-care reform. Organized opposition has fostered growing public skepticism, undermining the administration's prospects.
While Republicans on the banking committee welcomed the regulators' dissent, leading congressional Democrats said the basic elements of financial reform command a much broader consensus than the embattled initiatives. These Democrats said they remained confident they would pass a comprehensive regulatory bill by year's end.
"For someone who's involved in health care and this, this is very different," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Banking Committee, and also a leading player on health care. "We remain in very good shape" on regulatory reform.
Working Over Recess
Democrats plan to begin writing legislation during the August recess, working from hundreds of pages of polished drafts the administration has sent to guide the process.
The broad outlines of the plan remain stable after months of hearings -- Dodd said his committee has held 28 hearings on the subject -- and increasingly heated lobbying by industry and consumer groups. Democrats want to give the government new power to oversee large financial companies and important markets, and to shut down troubled firms in an orderly fashion. They want to create a consumer protection agency, removing that responsibility from banking regulators. And they want to rein in Wall Street, including by placing limits on bonuses and restricting investments made with borrowed money.
"These things are going to happen," said Steven Adamske, a spokesman for Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "It's complicated. It's not easy to do, but we are trudging through it."
The idea of a new agency to protect consumers has proved particularly popular on Capitol Hill, forcing some critics to drop their outright opposition and instead press for its powers to be circumscribed. The heads of the regulatory agencies argued Tuesday that the new agency should write rules, but that banking regulators should continue to ensure that companies comply with those rules, and punish those that do not.
Enforcement of consumer protection laws "should stay with the bank regulators, where it works well," said John Dugan, head of the Office of the Comptroller of the Currency.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., and John E. Bowman, acting head of the Office of Thrift Supervision, also argued that banking regulators should retain enforcement powers. Federal Reserve Governor Daniel K. Tarullo declined to take a position, but senior Fed officials have said they want to retain that power, too.