Friday, June 12, 2009

House Republicans propose financial reforms

By Kevin Drawbaugh
WASHINGTON (Reuters) - A group of U.S. Republican lawmakers on Thursday unveiled proposals to reform financial regulation by reining in the Federal Reserve, expanding the bankruptcy code and merging two bank regulatory agencies.
Their five-page document, released at a press conference, could give political cover to lawmakers who are skeptical about some of the Obama administration's own proposals for reform in response to the worst financial crisis in generations.
"Regulatory reform is needed to make sure that financial companies are never again allowed to wager their consumers' money without consequence, nor to rely on the government for a handout when they make reckless decisions," said Representative Scott Garrett, the top Republican on a key House markets panel.
Democrats, who control both the White House and Congress, are setting the reform agenda. President Barack Obama is expected to unveil a set of proposals on June 17. Treasury Secretary Timothy Geithner will testify the next day before both the House Financial Services Committee and the Senate Banking Committee.
Senate Banking Committee Chairman Christopher Dodd on Thursday called for creation of an independent consumer protection agency to oversee credit and bank products.
The Republican package examines many of the same issues that have been under study for months among Democrats, but predictably reaches some different conclusions.
For instance, the administration wants to establish a "systemic risk regulator" that would monitor and possibly intervene to address financial dangers in the economy.
The Republican package opposes giving systemic risk authority to the Federal Reserve, an idea that sources have said the administration favors, but many lawmakers distrust.
Instead, the Republicans call for creating a board of regulators to study systemic risk and report quarterly. The board would have no enforcement or supervisory powers.
Another high Obama administration priority is empowering a government agency to seize and unwind troubled non-bank financial institutions to avoid on-the-fly bailouts in the future like that of American International Group.
But Republicans, in a sharp repudiation of the bailout policies begun under former President George W. Bush, oppose such "resolution authority." They propose adding a new chapter to bankruptcy law specifically dealing with troubled, large non-bank financial institutions.
On bank regulation, the Republicans call for merging the Office of Thrift Supervision, which regulates mortgage lenders, and the Office of the Comptroller of the Currency, which regulates many of the nation's largest banks.
The resulting regulator would also take on bank supervision duties now held by the Fed and the Federal Deposit Insurance Corporation, both of which would be refocused on their core jobs -- monetary policy for the Fed, and deposit insurance for the FDIC.
The Republicans also want to limit the Fed's power to lend money to businesses in emergencies, under certain conditions. Under Chairman Ben Bernanke, the Fed has made loans to help broker the sale of Bear Stearns and bail out AIG. Continued...
Source: Reuters

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