Thursday
Jun182009
Regulation Reform Could Grant The Fed New Powers
Thursday, June 18, 2009 at 4:31PM
By Learned Foote- Talk Radio News Service
At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Treasury Secretary Tim Geithner answered questions about the proposal for a "sweeping set of regulatory reforms" announced on Wednesday by President Obama.
All of the senators agreed that regulatory reform was long overdue, but several questioned the expansion of power granted to the Federal Reserve under this proposal.
Geithner said that this proposal will not address every problem of the financial system, but is instead designed to cope with the major causes of the financial crisis. Geithner argued that the regulatory system failed due to the absence of an overarching regulator guarding the system as a whole, in order to identify concentrated systemic risk to the financial system.
"Risk to our system can come from almost any quarter," said Geithner. "We must be able to look in every corner and across the horizon for dangers, and our system was not able to do that."
He proposed a Financial Services Oversight Council, consisting of the heads of all regulatory agencies to identify gaps in the the government supervisory framework. However, he argued that a committee should not regulate the largest, most complicated institutions. Geithner said that the Federal Reserve could best take on that regulatory role, with a "carefully designed, modest amount of additional authority." He noted that some powers would also be taken away from the Fed under this proposal.
Senator Chris Dodd (D-Conn) said that the proposal would grant "extraordinary authority and power" to the Fed, and quoted the former Chairman of the Federal Reserve, Paul Volcker, who had previously stated that giving the Fed too many responsibilities could interfere with its ability to regulate monetary policy. Dodd also criticized the track record of the Fed in the past. Dodd noted that Congress gave authority to the Fed to regulate mortgages in 1994, and yet they "dropped the ball entirely" by failing to address the mortgage crisis in a timely manner.
The senators also expressed wishes that the Fed should remain an independent entity, and a few criticized certain provisions that would require the Fed to obtain the permission of the executive branch to lend money to institutions unregulated by the Fed, a move that some argued would politicize the policies set forth by the Fed.
At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Treasury Secretary Tim Geithner answered questions about the proposal for a "sweeping set of regulatory reforms" announced on Wednesday by President Obama.
All of the senators agreed that regulatory reform was long overdue, but several questioned the expansion of power granted to the Federal Reserve under this proposal.
Geithner said that this proposal will not address every problem of the financial system, but is instead designed to cope with the major causes of the financial crisis. Geithner argued that the regulatory system failed due to the absence of an overarching regulator guarding the system as a whole, in order to identify concentrated systemic risk to the financial system.
"Risk to our system can come from almost any quarter," said Geithner. "We must be able to look in every corner and across the horizon for dangers, and our system was not able to do that."
He proposed a Financial Services Oversight Council, consisting of the heads of all regulatory agencies to identify gaps in the the government supervisory framework. However, he argued that a committee should not regulate the largest, most complicated institutions. Geithner said that the Federal Reserve could best take on that regulatory role, with a "carefully designed, modest amount of additional authority." He noted that some powers would also be taken away from the Fed under this proposal.
Senator Chris Dodd (D-Conn) said that the proposal would grant "extraordinary authority and power" to the Fed, and quoted the former Chairman of the Federal Reserve, Paul Volcker, who had previously stated that giving the Fed too many responsibilities could interfere with its ability to regulate monetary policy. Dodd also criticized the track record of the Fed in the past. Dodd noted that Congress gave authority to the Fed to regulate mortgages in 1994, and yet they "dropped the ball entirely" by failing to address the mortgage crisis in a timely manner.
The senators also expressed wishes that the Fed should remain an independent entity, and a few criticized certain provisions that would require the Fed to obtain the permission of the executive branch to lend money to institutions unregulated by the Fed, a move that some argued would politicize the policies set forth by the Fed.
“Frank” Views On Regulatory Reform
U.S. Representative Barney Frank (D-Mass.) called Monday for the need for financial regulation enforcement.
Frank, the Chairman of the House Committee on Financial Services, issued remarks at a luncheon held at the National Press Club.
“We need to regulate for normal human beings and that’s what we hope to do. We think it’s important for there to be both regulatory structures that provide focused responsibility for the right kind of regulation and the appointment of individuals to do it,” said Frank.
Frank's committee released a list of elements needed for regulatory reform. The list calls for a systemic risk regulator to identify and react to risks which arise from entities or activities that have the potential to jeopardize the financial system as a whole.
Frank also focused on consumer protection. His committee would like to propose a separate Consumer Financial Protection Agency for this purpose.
Said the Congressman, “I believe we can protect consumers from abuses without endangering the system...I invite the judgement of failure if we are not able to deliver that, and I will tell you I am not politically inclined to take on responsibility I don’t think I can handle.”
Frank believes that a legislative package with these things included will be presented by the end of the year.
In addition, Frank implored his committee to address issues such as securitization market accountability, an end to regulatory arbitrage in domestic and international markets, and the tightening of derivative regulations.