Geithner Pushes Overhaul Of Financial System
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris.
One day after President Obama unveiled his plan to rework financial regulation, the Treasury secretary, Timothy Geithner, went to Capitol Hill to sell it. The sweeping proposal would change the rules for banks and investment firms, and much of the plan requires congressional approval.
NPR's John Ydstie reports on today's hearing.
JOHN YDSTIE: The president's 88-page plan does lots of things. It eliminates one troubled regulator, the Office of Thrift Supervision, which was responsible for a rogues' gallery of failed institutions from AIG to Countrywide, and it creates the Consumer Financial Protection Agency to make sure products like deceptive mortgages can't fuel another financial crisis. That's not a popular idea with financial companies that don't want a powerful new overseer monitoring their relationship with consumers.
The industry's opposition sparked a heated response from Senate Banking Committee Chairman Christopher Dodd of Connecticut at the start of the committee's hearing today.
Senator CHRISTOPHER DODD (Democrat, Connecticut): When I pick up the morning newspaper, and I read the first headline here, that fault lines emerge as industry groups blast plan to create consumer agency. What planet are you living on? The very people who created the damn mess are the ones now arguing that consumers ought not to be protected.
YDSTIE: But it was new powers for the Federal Reserve in the administration's proposal that caused the most furrowed brows and sharp questions today. The White House wants to make the Fed the so-called systemic regulator, giving it the authority to oversee big interconnected financial firms like Lehman Brothers, whose failure can threaten the whole financial system. Dodd jumped on the issue as he began questioning Secretary Geithner at the hearing today.
Sen. DODD: A fellow by the name of Mark Williams, a former Fed examiner, said the following, he said: Giving the Fed more responsibility at this point is like a parent giving his son a bigger, faster car right after he crashed the family station wagon, end of quote. Why is it your judgment that the Fed should be given this additional extraordinary authority and power and does it not conflict with their fundamental responsibility of conducting monetary policy?
Secretary TIMOTHY GEITHNER (Department of Treasury): Mr. Chairman, I agree with you. These are some of the most important issues we're going to have to confront together.
YDSTIE: Many lawmakers and others believe the Fed bears a lot of blame for the financial crisis. They think it kept interest rates too low too long, providing fuel for the housing bubble. They also point out that former Fed Chairman Greenspan declined to reign in exotic mortgage products, even though the Fed was supposed to protect consumers from them.
Secretary Geithner defended the proposal to give the Fed the new powers by pointing out that other countries who put the systemic powers outside their central banks have not fared very well. And he said, overall, the amount of power the Fed has in total would remain about the same.
Sec. GEITHNER: They are not a dramatic increase in powers. We are proposing to take away from the Fed, responsibility for writing rules for consumer protection and enforcing those rules. That is a substantial diminishment of authority and preoccupation and distraction.
YDSTIE: Alabama Republican Richard Shelby had another concern about the Fed's new roles: supervising huge financial firms.
Senator RICHARD SHELBY (Republican, Alabama): I personally believe this represents a grossly inflated view of the Fed's expertise. Presently, the Fed regulates, primarily, bank holding companies and state banks. As a systemic risk regulator, the Fed would likely have to regulate insurance companies, hedge funds, asset managers, mutual funds and a variety of other financial institutions that it has never supervised before.
YDSTIE: Geithner responded that the administration thinks the Fed's mandate would be narrower - focusing mostly on large banks and investment banks. The administration wants Congress to pass the reform legislation by the end of this year. After its debut on Capitol Hill today, it's clear the Fed's role will be a key issue.
JOHN YDSTIE, NPR News, Washington.
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