Fed Opposes Stripping Central Bank of Consumer-Loan Authority
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By Craig Torres
June 18 (Bloomberg) -- Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.
Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.
“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.
The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.
The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.
Bernanke Opposition
Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.
Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.
“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”
Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.
Congressional Criticism
Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.
“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”
The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.
Lending Powers
The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.
Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.
“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”
In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.
‘Stress Tests’
Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.
Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.
The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’
Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”
To contact the reporter on this story: Craig Torres in Washington at [email protected], Scott Lanman in Washington at [email protected].
Last Updated: June 18, 2009 00:01 EDT
I cannot imagine that Obama dude is so lowly paid and overworking himself like a slave! He should learn from me to relag relag lah!*hee*hee*
Share | Email | Print | A A A
By Craig Torres
June 18 (Bloomberg) -- Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.
Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.
“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.
The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.
The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.
Bernanke Opposition
Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.
Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.
“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”
Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.
Congressional Criticism
Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.
“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”
The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.
Lending Powers
The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.
Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.
“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”
In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.
‘Stress Tests’
Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.
Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.
The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’
Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”
To contact the reporter on this story: Craig Torres in Washington at [email protected], Scott Lanman in Washington at [email protected].
Last Updated: June 18, 2009 00:01 EDT
I cannot imagine that Obama dude is so lowly paid and overworking himself like a slave! He should learn from me to relag relag lah!*hee*hee*
