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:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

  • 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.

  • 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.

  • 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.

  • 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

  • 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.


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