US financial regulators defend turf
Senior U.S. financial regulators defended their turf on Friday at a congressional hearing on the Obama administration’s plan to shake up Washington’s banking and market oversight bureaucracy.
The plan aims to bring a creaking system set up in the 1930s, with regulation now spread across more than a dozen agencies, into the 21st century. But it is meeting stiff resistance from banks, lawmakers and regulators.
Treasury Secretary Timothy Geithner, the administration’s chief regulatory reform architect, said some territorialism was natural on the part of officials trying to protect the legal authorities of their agencies.
He told the hearing, “I understand why people who still preside over those authorities” are trying to preserve them. But he added he sees no “plausible defense” for maintaining the status quo.
Many more months of hearings and votes lie ahead in the reshaping of financial regulation. President Barack Obama, responding to the worst financial crisis in generations and with the economy in a deep recession, wants to enact financial regulatory changes by the end of the year.
The United States is racing to enact reforms along with Britain and the European Union, where the financial crisis also has devastated economies and led to urgent calls for reform.
Three parts of Obama’s broad package would reconfigure the U.S. oversight system: naming the Federal Reserve as regulator of systemic economic risk; creating a Consumer Financial Protection Agency; and consolidating bank supervision.
At the hearing, John Bowman, acting director of the Office of Thrift Supervision (OTS), argued for his agency’s survival. Obama wants to merge it with another agency as a step toward streamlining bank supervision.
BOWMAN DEFENDS OTS
Bowman said he disagrees with the administration’s proposal to abolish his agency and to eliminate the federal thrift charter underlying the savings and loan industry.
OTS was chief regulator of bailed-out former mega-insurer American International Group and of mortgage lender Washington Mutual, the largest U.S. bank failure in history.
Bowman told lawmakers that OTS was not chosen by these and other financial firms as the most lenient regulator they could find, as critics of so-called regulator-shopping have said.
He said OTS also opposes allowing the proposed Consumer Financial Protection Agency to strip examination and enforcement powers away from current bank regulators.
The CFPA is an Obama proposal meant to centralize the consumer protection duties of several existing agencies in a new organization without distracting additional obligations.
John Dugan, head of the Office of the Comptroller of the Currency (OCC) also said the CFPA should not strip powers from bank regulators.
He said he generally supports the administration’s reform plan, including the proposal to merge his agency with OTS. But he said he opposes a proposal to let the Federal Reserve override his agency’s attempts to police national banks.
Federal Deposit Insurance Corp Chairman Sheila Bair endorsed the CFPA, but said bank regulators should continue to examine and enforce standards.
She said the CFPA should be able to write rules, but that federal banking regulators such as the FDIC should retain authority to supervise insured institutions.
EXEC PAY BILL NEXT WEEK
Committee Chairman Barney Frank said at the hearing a bill to impose curbs on executive pay is likely to move to the floor of the House for action on July 31.
The bill would give shareholders the right to cast non-binding votes on executive compensation plans at publicly traded companies, while banning pay schemes at financial institutions deemed to encourage excessive risk-taking.
Aides said another bill to fundamentally change the $92-billion student loan market, already approved by a House committee, would also move to the House floor soon.
The administration has sent proposed legislation to Congress meant to overhaul the credit rating agency industry, widely criticized for its role in the financial crisis.
At the hearing, Representative Paul Kanjorski, the Democratic chairman of a key subcommittee, said more “radical reforms” are needed than the ones proposed by the White House. Firms with a major stake in the outcome include Moody’s Corp and Standard & Poor’s.
“By sprinkling their magic dust on toxic assets, rating agencies turned horse manure into fool’s gold,” Kanjorski said. “We therefore should no longer pursue only modest modifications in regulating this problematic industry.”
Responding to a question from Kanjorski, Geithner said change is needed, but said he did not see “a practical, viable alternative” to the credit rating agencies’ present business model, in which debt issuers pay for the agencies’ ratings.
GEITHNER SEES INSURANCE “PROCESS”
Geithner also said it is important “to begin the process of putting in place federal-level oversight” of the insurance industry. The Obama administration has proposed creating an Office of National Insurance within the Treasury Department.
The office would “monitor all aspects of the insurance industry,” according to draft legislative language.
The nation’s 6,000 insurers are now regulated by state and territorial governments. Some insurers want federal oversight; some don’t.
The proposed office would not regulate insurers, but would be a hub for industry information and surveillance. Some in the industry see it as a stepping stone toward eventual national oversight of insurers.
Companies with an interest in insurance reforms include Allstate Corp, Travelers Cos and others.