Witnesses call for new financial risk regulator

Federal Reserve Chairman Ben Bernanke suggested Tuesday that federal agencies could split the task of taking over troubled nonbank firms such as American International Group, whose collapse could have brought down the U.S. financial sector.

Bernanke and Treasury Secretary Tim Geithner agreed with House Financial Services Committee Chairman Barney Frank, D-Mass., during a committee hearing that Congress should pass legislation that would create an FDIC-like authority that could take over nonbanks and unwind their assets. Geithner said such an entity would fill "a significant void" in the current system that has forced the federal government to provide $182 billion in assistance to keep AIG solvent after the company suffered massive losses by engaging in credit-default swaps.

In his testimony, Geithner hinted that Treasury would play a lead role to provide help to troubled firms, purchase their assets, assume their liabilities and purchase equity interests. The government also should have the power to sell or transfer assets and liabilities as well as void or change contracts, such as the $165 million in executive bonuses to AIG employees, Geithner said.

Rep. Melvin Watt, D-N.C., told Geithner he was concerned about giving the Treasury secretary such power, suggesting that it would be better handled by officials facing less political pressure. But Geithner stressed any decision-making would be done on a consultative basis. "We want to use a mechanism built on the current FDIC model, where a judgment to intervene in some sense requires a judgment by the president and the secretary of the Treasury, by the chairman of the Fed and by the board, and ... the board of the FDIC," Geithner said.

Bernanke suggested that duties could be split, with the FDIC in charge of unwinding and selling assets, as it already does in the case of banks, and another agency in charge of regulating the safety and soundness of a hedge fund, insurance carrier or private equity firm. Bernanke did not say which agency should handle the latter. Frank said he would try to move on legislation quickly, perhaps dropping a bill into the hopper by next week.

Geithner also came under some criticism for his plan to have the federal government and private investors purchase up to $1 trillion in toxic assets to unfreeze credit markets. Rep. Michael Capuano, D-Mass., said he was concerned about the risk that the FDIC would be assuming under the plan by providing leverage funding, about 80 percent of the purchase price, for the buying of whole loans.

Geithner noted that FDIC supports the program and has had experience in unwinding such assets. Frank said he was in favor of the Geithner plan and did not share Capuano's concern. "If I thought the FDIC was going to be in danger, I would have those concerns," Frank said. "The FDIC has to be totally insulated from any failure and I'm sure it will be."

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

    Download
  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download
  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

    Download
  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.

    Download

When you download a report, your information may be shared with the underwriters of that document.