U.S. – Obama offers legislation to make Fed systemic risk police

July 23, 2009

OBAMA/ WASHINGTON, July 22 (Reuters) -  The Obama administration sent proposed legislation to the U.S. Congress on Wednesday which would put the Federal Reserve in charge of policing in charge of overseeing large, interconnected financial firms and “big picture,” or systemic, financial risk in the economy.
As expected, President Barack Obama’s administration wants the Fed to handle this new job with the help of a council of bank regulators that would replace the President’s Working Group on Financial Markets.

Some lawmakers, disappointed with the Fed’s recent work in protecting consumers and managing risk, are
skeptical about giving the central bank this new duty. But only the Fed is fit to perform exams of the largest, most systemically important financial institutions, a senior U.S. Treasury Department official said.

“With respect to the regulation of what we have called Tier 1 Financial Holding Companies, the Federal Reserve is the only regulatory body with the experience and with the deep and broad understanding of the capital markets,” Deputy Treasury Secretary Neal Wolin told a banking trade group.

The administration said it will send legislative language to Congress on Thursday on its plan to streamline bank regulation by elimiating the charter for thrifts, which underlies the U.S. savings and loan industry, and merging the Office of the Comptroller of the Currency and
the Office of Thrift Supervision.

Next week, the Treasury will present its outline of rules to govern the trade of over-the-counter derivatives, he added.

Wolin also argued in favor of the Obama administration’s plan to create a regulatory agency that will focus on protecting consumers from dangerous financial products.

Wolin said he saw no problem with two distinct agencies weighing a company’s consumer protection work and its general financial health. Separating these functions will not cause tensions among regulators, he said.

“From our perspective, we ought to have safety and soundness and we ought to have consumer protection. We oughtn’t to have to choose between the two, and the two are very much capable of coexisting,” he told the trade group, adding he was willing to work with the banking sector to fine-tune the legislation.

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