Senators propose consumer-protection regulator within Fed
Wednesday, March 3, 2010
It's an unlikely twist after all the beatings that Democrats and Republicans have laid on the Federal Reserve over the past year.
Some lawmakers who set out to improve financial regulation by stripping the Fed of its powers are moving toward the grudging conclusion that the Fed should hold even more power.
The central bank was responsible for the health of the nation's largest banks and the safety of American borrowers. Its failures in both roles have been well documented.
Even so, key lawmakers on the Senate banking committee are seeking bipartisan support for a plan to house a new consumer-protection regulator inside the Fed. Separate efforts to strip the Fed of its responsibility for overseeing large banks have lost momentum.
Adding authority to the Fed has emerged as the only viable option, congressional aides said. Democrats wanted a free-standing consumer-protection agency. Republicans were willing only to tuck a new regulator inside another agency. Democrats suggested the Treasury Department. Republicans said no.
The Fed, whose leaders had largely abandoned efforts to retain a role in consumer protection, was left as the last candidate.
"A few days ago, the Fed was in some degree of disfavor. The talk was giving it less power, not more," said Sen. Mike Johanns (R-Neb.). "So what an unusual phenomenon has developed over the last few days."
The latest proposal, by Sens. Christopher J. Dodd (D-Conn.) Bob Corker (R-Tenn.), was greeted with horror Tuesday by liberal lawmakers and a broad coalition of trade unions and consumer-protection and other advocacy groups. Sen. Byron L. Dorgan (D-N.D.) called it "a terrible idea." Rep. Barney Frank (D-Mass.) said it was "almost a bad joke."
"In my 20 years of trying to get the Federal Reserve to properly protect consumers, it has been an uphill, and very often unsuccessful, battle," Schumer said. "I am very leery of any consumer regulator being placed inside the Fed."
Dodd, chairman of the banking committee, has been negotiating with Corker to craft a package of financial reforms capable of winning 60 votes in the Senate, where Democrats control 59 seats.
The negotiations have stalled for months on the question of how to better protect borrowers from abuse by lenders. The two senators are in broad agreement on a proposal to place a presidential appointee inside the Fed with an independent budget and a mandate to write rules protecting mortgage and credit card borrowers and other bank customers. Those rules would be enforced by existing banking regulators.