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Washington - Treasury Secretary Timothy Geithner and Federal Reserve chairperson Ben Bernanke staked out opposing sides on Friday in a turf war over who should protect Americans from shady mortgage lending, abusive credit card fees, payday loans and other high-cost or risky financial products.
The White House wants to create a new Consumer Financial Protection Agency to oversee a vast range of financial products, stripping the Federal Reserve and other banking regulators of their current authority for policing them.
"I think it's very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do," Geithner told the House Financial Services Committee. He cited the collapse of the housing and credit markets because of high-risk subprime mortgages made to borrowers who didn't understand and couldn't afford them.
Bernanke, appearing before the same committee after Geithner, argued that the Fed should retain its consumer protection powers regarding consumer products.
"Without extensively entering the debate," Bernanke said, Congress should be aware of "some of the benefits that would be lost through this change," including the Fed's consolidated resources for also ensuring the safety and soundness of banks.
Geithner brushed aside the Fed chairman's concerns as part of a typical Washington turf battle.
"With great respect to the chairman and other supervisors who are reluctant to do this, they are doing what they should, which is defend the traditional prerogatives of their agencies," Geithner said. "I think frankly all arguments should be viewed through that prism."
While that's understandable, Congress has to intervene, Geithner added. "Inherent in your job is to think about how to make those choices," he said.
Other regulators testifying with Bernanke said they, too, had concerns about the administration's plan. Sheila Bair, chairperson of the Federal Deposit Insurance Corporation, suggested that the new agency be allowed to write rules that protect consumers, but that existing regulators be tasked with enforcing them.
When asked by Rep Carolyn Maloney whether such an arrangement would work, Geithner said no, because enforcement would remain uncoordinated across the government.
The House committee's chairperson, Rep Barney Frank, and Senate Banking Chairperson Christopher Dodd both support the plan to create a new Consumer Financial Protection Agency. But the effort has slowed amid opposition from bankers and other financial industry leaders, as well as the regulators, Republicans and some Democrats.
Frank has delayed a vote on the measure until after the August recess, but maintains he has the votes to pass it.
Rep Jeb Hensarling and other Republicans on the panel said Friday they thought it was foolish to give unelected bureaucrats the authority to determine what financial products are fair.
"They will be empowered to decide which credit cards we can receive, which home mortgages we are permitted to possess, and even whether we can access an ATM machine," Hensarling said.
House Republicans have offered an alternative that would strip the Fed of its regulatory role and abolish the Office of the Comptroller of the Currency and the Office of Thrift Supervision. In their place would be a single regulator for depository institutions, which would include an office focused on consumer protections. Unlike the administration's plan, the Republican-envisioned regulator would have no authority over non-bank institutions, such as mortgage brokers.
Obama's plan taps the Fed to be the regulator of huge, globally interconnected financial companies whose collapse could endanger the entire US financial system and the broader economy.
Bernanke said Friday that at a "very rough guess" about 25 companies would currently be deemed too big to fail under the Obama proposal. Virtually all of those firms are organised as bank holding companies, which means that they are subject to regulation by the Fed, Bernanke said. Given that, Bernanke said he doesn't envision the Fed's oversight extending to any "significant number of additional firms."
Both Democrats and Republicans in Congress are leery of giving the Fed additional powers, blaming what they say was its lack of regulatory oversight of banks and risky mortgages for leading to the current financial crisis.
- AP
