Facing skeptics, Treasury chief defends regulatory overhaul

Senate Banking Committee members Thursday criticized Treasury Secretary Tim Geithner's proposal to make the Federal Reserve a super-regulator that would monitor for systemic risk throughout the financial system - a key platform of the Obama administration's plan to revamp the nation's regulatory framework.

Banking Committee ranking member Richard Shelby, R-Ala., disputed Geithner's contention that the Fed is the only agency that could ensure the failure of one firm would not bring down others and cripple markets. Such a position "reflects a grossly inflated view of the Fed's expertise," Shelby said.

Shelby listed all the roles the Fed performs, such as setting monetary policy, monitoring bank regulation and providing consumer protection.

"These responsibilities conflict at times and some receive more attention than others. I do not believe that we can reasonably expect the Fed or any agency to effectively play so many roles," he said. The comments by Shelby, whose support will be critical to move a bill on a bipartisan basis, reflected many GOP concerns over the Obama plan.

A former president of the New York Fed, Geithner is fighting for the central bank to play the role of sole super-regulator. Some lawmakers have called for a council of regulators to play such a role, but Geithner dismissed that notion, saying, "You don't convene a committee to put out a fire."

But realizing congressional resistance, Geithner made some concessions. He proposed that a council of regulators advise the Fed on its proposed role; that Treasury have the power to sign off on any new emergency lending; and that responsibility for consumer protection be shifted from Treasury to a new agency.

Sen. Mark Warner, D-Va., suggested a more robust council approach because it would bring in expertise from areas outside the Fed's mandate. For example, the SEC would provide knowledge on securities issues, and the council could deploy a staff solely focused on evaluating systemic-risk issues.

By contrast, Geithner's proposed council "has the ability to gather information but does not have the ability to act in any way. It will not provide the nonsilo approach that I think we are looking for," Warner said.

Sen. Robert Menendez, D-N.J., agreed with Warner and asked Geithner what would happen if one agency or the full council disagreed with the Fed. Geithner responded that his plan contains checks and balances, with the council having to send reports to Congress. In addition, he said, its recommendations would be public, which would help lawmakers carry out oversight responsibilities.

Sen. Robert Bennett, R-Utah, said he opposed a proposed change in the Bank Holding Company Act that allows commercial firms to charter or acquire industrial loan companies, which are state-chartered banks that offer limited financial services. The Geithner plan would require all businesses that control an insured depository institution to be subject to Federal Reserve supervision. ILCs are major business in Utah. "In this proposal you are killing one very major source of credit where there has been no difficulty with respect to the -- the crisis," said Bennett. "You said we're trying to deal with those that were essential to the crisis. I'm talking about ILCs."

Geithner replied the administration wanted all depository institutions under a single regulatory framework to prevent firms from migrating to one with lower standards.

Another GOP critic, Sen. David Vitter of Louisiana, pushed Geithner to include a revamp of Fannie Mae and Freddie Mac, but the Treasury secretary indicated that would come next year.

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

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

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.


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