Obama team asks Congress to combine bank regulators

July 24, 2009

By David Lawder and Patrick Rucker
WASHINGTON, July 23 (Reuters) – The U.S. Treasury Department on Thursday sent Congress a plan that would consolidate two federal bank regulators in a move it said would help prevent lenders from seeking the loosest oversight.

The legislation would combine the 146-year-old Office of the Comptroller of the Currency and the 20-year-old Office of Thrift Supervision into a new national bank supervisor, a move broadly supported by Congress.

“It will also eliminate the thrift charter and the thrift holding company framework, which we believe is one of the central sources of (regulatory) arbitrage that has been part of the current crisis we’ve been experiencing,” U.S. Treasury Secretary Neal Wolin told reporters .

The proposed bill also would give the Treasury power to seize large finance companies on the edge of collapse and appoint either the Securities and Exchange Commission or the Federal Deposit Insurance Corp to save or unwind the troubled firm.

Officials at the Treasury and Federal Reserve have said the government needs broader power to take control of sophisticated finance companies that may threaten the global financial system.

The legislative language on the so-called “resolution authority” differs from a similar bill sent to lawmakers in the spring by designating the SEC as the receiver or conservator of failing firms that are primarily broker-dealers, Wolin said.

The bill also makes clear that the potential costs of unwinding big financial firms would not be borne by community banks with less than $10 billion in assets. Many smaller banks have complained that their FDIC deposit insurance fees have gone up due to failures and rescues of larger, riskier institutions.

The bill aims to standardize examination fees for larger firms to prevent them from shopping around among regulators and would reduce fees for smaller banks with less than $10 billion in assets.

Larger firms would be assessed bank examination fees by the new regulator, plus new holding company fees by the Federal Reserve, said another Treasury official, Michael Barr, the assistant secretary for financial institutions.

Consolidating the bank regulators is just one aspect of a broader plan to eliminate blind spots in how Washington oversees financial markets.

During a five-year housing boom that ended in 2006, the Office of Thrift Supervision was a key regulator for many now-failed lenders like Countrywide Financial Corp, IndyMac Bank and Washington Mutual.

Officials at the OTS, created during the 1980s savings-and-loan crisis, at times boasted about cutting regulatory red tape and in recent years relied on large lenders whose fees funded the agency’s operations.

While the top financial lawmakers agree that OTS should be eliminated, other aspects of the regulatory overhaul are more controversial like a plan to create a Consumer Financial Protection Agency that would gather powers now held by other agencies.

But the plan would not alter state charters for thrifts and other banks and would allow financial firms organized in mutual ownership to continue in that form, but subject to the new single national bank regulator’s supervision, Barr said. Allowing mutual banks to continue has been a concern for U.S. House of Representatives Financial Services Committee Chairman Barney Frank, whose home state of Massachusetts is home to many mutual institutions .

The Treasury officials said they are working with lawmakers to try to get the Obama administration’s sweeping reform plan passed by Congress by the end of this year.
(Reporting by Patrick Rucker and David Lawder; Editing by Diane Craft)

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