By Brady Dennis
Washington Post Staff Writer
Thursday, September 24, 2009
Treasury Secretary Timothy F. Geithner on Wednesday once again pressed Congress to pass a comprehensive overhaul of the nation's financial regulatory system, telling members of the House Financial Services Committee that "we can't let the momentum for reform fade as the memory of the crisis recedes."
Geithner spent much of the morning's hearing trying to allay lawmakers' reservations about parts of the Obama administration's reform proposals and to urge them to act before the end of the year.
"Time is the enemy of reform," he said in his prepared statement. "As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency."
Lawmakers from both parties raised concerns about elements of the administration's overhaul plans, including doubts about a proposed consumer financial protection agency, fears that taxpayers would continue to implicitly prop up "too big to fail" institutions, and questions about the power of the Federal Reserve and how best to provide the government with authority to take over and dismantle troubled financial institutions.
Still, a noticeable party-line split loomed over much of the hearing, with Republicans expressing sharp skepticism over the administration's proposals, particularly the creation of a new agency to monitor financial products such as credit cards and mortgages.
Spencer Bachus (Ala.), the committee's ranking Republican, spoke of his "deep-seated reservations" about the administration's plans, which he said had "failed to achieve anything approaching consensus," either on Capitol Hill or among existing regulators.
"We do need smarter regulation but not necessarily more regulation," Bachus said. "We need enforcement of existing regulation, not another layer of regulation or more government bureaucracy."
Such comments drew a rebuke from Rep. Luis V. Gutierrez (D-Ill.), who said Republicans had unfairly compared financial reform to the health-care debate and labeled the administration's proposals as simply more "big government."
"If we do not include a strong, effective consumer financial protection agency within our regulatory reform legislation, Congress will have failed to address the current and any future economic challenges facing our country," Gutierrez said.
For his part, Geithner reiterated that while the administration had submitted more than 600 pages of proposed legislative language, officials remain open to changes.
"We don't have a monopoly of wisdom on these things," Geithner said. "Our test is: What will work?"
Committee Chairman Barney Frank (D-Mass.) said he is planning an aggressive schedule of hearings over the coming weeks to try to answer that question, with the expectation of producing legislation in the House and Senate by year's end. "This is going to be a very time-consuming committee in October and November," he said.
Frank signaled this week that he is willing to compromise on perhaps the most controversial tenet of the administration's plan -- the new consumer regulator. He circulated a memo to members of his committee Tuesday, saying he is prepared to make key changes to the original outline for the agency in an effort to address criticism about its power and scope.
Frank wrote that he plans to exclude a range of non-financial businesses, such as auto dealers and telecom companies, from oversight by the agency. He also said he plans to fund the agency in a way that won't further burden financial institutions and will no longer require them to offer "plain vanilla" financial products. Even so, financial industry lobbyists, as well as some existing regulators, continue to oppose the creation of a stand-alone agency. But Frank has shown no inclination to back down from its creation, saying during Wednesday's hearing that the regulators currently in charge of consumer protection issues -- the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency -- had an "abysmal" record.
"It is simply not the case that they have paid much attention to it," he said.
Hours later, some of those very regulators, including FDIC Chairman Sheila C. Bair and Comptroller John C. Dugan, appeared before Frank's committee to once again share their views on the sweep of the administration's regulatory proposals.
Both regulators, as well as John Bowman, the Office of Thrift Supervision's acting director, agreed that the government must find a way to avoid propping up institutions whose failure could harm the financial system. "The government needs a way to say no," Bair said, adding, "We need to scrap the 'too big to fail' doctrine."
The regulators were less enthusiastic about the Obama administration's outline for a new consumer agency, expressing unease about its scope of powers.
The American Bankers Association, the U.S. Chamber of Commerce and the Independent Community Bankers of America, among others, also expressed reservations Wednesday during a hearing of the House Small Business Committee.