Key regulators on today broke with the Obama administration, reaffirming their belief that some new powers to monitor big institutions against financial threats should go to an interagency council not the Federal Reserve.
Key regulators today broke with the Obama administration, reaffirming their belief that some new powers to monitor big institutions against financial threats should go to an interagency council not the Federal Reserve.
Some Republican lawmakers also continued to warn against endowing the Fed with new powers in an overhauled system as Congress slogs through a complex deliberation that could reshape the financial landscape in the wake of a historic crisis.
Under the administration's financial overhaul proposal, the central bank as "systemic risk regulator" would be able to duplicate and even overrule other regulators.
But Securities and Exchange Commission Chairman Mary Schapiro and Sheila Bair, head of the Federal Deposit Insurance Corp., stressed to the Senate Banking Committee that crucial role should be played by the new stability oversight council. The body would include the Treasury Department, the Fed, and the two independent agencies headed by Bair and Schapiro.
An interagency council with strong and extensive authorities "will provide for an appropriate system of checks and balances," Bair testified. "It will be important to preserve the long-standing principle that bank regulation and supervision are best conducted by independent agencies."
Schapiro told the panel that the new council "must be strengthened well beyond" what is envisaged in the administration's plan.
Among other things, the council should monitor the growth of banks and other financial institutions "to prevent the creation of institutions that are either 'too-big-to-fail' or 'too-big-to succeed,'" Schapiro said.
Sen. Richard Shelby of Alabama, the committee's senior Republican, said expanding the Fed's powers as called for in the administration's plan "could be very dangerous."
A number of lawmakers of both parties insist that the Fed failed to prevent the economic crisis and shouldn't be entrusted with more responsibility but should stay focused on its primary duty of setting monetary policy.
