Bernanke Defends Calls For Greater Fed Power

Fed Chairman Ben Bernanke joined other bank regulators to testify on the administration's proposal to make the central bank the "systemic risk regulator." Bernanke sees it as a "modest reorientation of the Fed's responsibilities," but critics say it's rewarding the Fed for failing to do its job in the years leading up to a financial crisis.

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MADELEINE BRAND, host:

And I'm Madeleine Brand.

Today, new details on plans to regulate banks. The Obama administration sent Capitol Hill a proposal that would create, in effect, a couple of powerful overseers. The Federal Reserve would be a kind of super regulator monitoring systemic risk in addition to its other duties. Today, the House Financial Services Committee focused on another part of the plan and that is creating a new consumer financial protection agency.

NPR's Yuki Noguchi explains.

YUKI NOGUCHI: This proposed new agency would regulate financial products, like the Consumer Product Safety Commission oversees the safety of toys and car seats. Mortgage brokers, consumer credit companies and pay day loan operations would come under federal oversight for the first time. And Treasury Secretary Timothy Geithner told members of the House committee, such a body is necessary because the existing system failed at protecting consumers from predatory lending.

Secretary TIMOTHY GEITHNER (Department of Treasury): It failed because our system allowed a range of institutions to escape effective supervision. It failed because our system was fragmented, fragmenting responsibility for consumer protection over numerous regulators, creating opportunities for evasion. And it failed because all of the federal financial services regulators have higher priorities than consumer protection.

NOGUCHI: Geithner said the new agency would both write and enforce its own policies to make sure the responsibility stays under one roof. But any time you talk about shifting power in Washington, battle lines get drawn. And at the hearing today, the chiefs of other regulatory agencies defended their turf.

Mr. JOHN DUGAN (Comptroller of the Currency): We do have significant concerns with some elements of the proposed CFBA.

NOGUCHI: John Dugan is comptroller of the currency. He objected to giving a single agency such broad power without input from other banking regulators, like his own agency. Sheila Bair chairs the Federal Deposit Insurance Corporation. She agreed stronger consumer protections are necessary, but told House members she shared some of Dugan's concerns.

Ms. SHEILA BAIR (Federal Deposit Insurance Corporation): As both the bank regulator and deposit insurer, I'm very concerned about taking examination and enforcement responsibility away from bank regulators. It would disrupt consumer protection oversight of banks and would fail to adequately address the current lack of non-bank supervision.

NOGUCHI: Chairman of the Financial Services Committee Barney Frank anticipated the push back.

Mr. BARNEY FRANK (Chairman, Financial Services Committee): The fact is that what we are talking about are agencies that are going to lose powers. And they object to losing their powers.

NOGUCHI: But he said the old way doesn't work. Regulators, including the Fed, failed to use their consumer protection powers as many consumers were sold bad loans.

Mr. FRANK: Yes, it is true that they are pristine powers. They have sat largely undrawn upon for a while, but I think it's time to put them into hands of someone who'd use them.

NOGUCHI: Not everyone agrees a bigger, more powerful regulator is the answer. New Jersey Republican Scott Garrett said a new agency writing its own rules has a potential to create a lot of confusion.

Representative SCOTT GARRETT (Republican, New Jersey): It's going to limit consumer choice, limit credit availability. It's going to increase cost. And the most important thing, most ironic thing it potentially decreases safety and soundness for a banking system.

NOGUCHI: Geithner said political infighting is to be expected, but urged Congress to pass the overhaul this year.

Sec. GEITHNER: Given the amount of authority we're forcing to take away from people who have it today, there is a lot of resistance and opposition. And if we wait, or we try to do it piecemeal, it's going to be much harder, I think, for this committee to find consensus on something sufficiently strong.

NOGUCHI: Geithner is expected to testify before the same committee in September.

Yuki Noguchi, NPR News.

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