Geithner Defends Consumer Plan, Snubs Regulator Pleas

From Bloomberg.com (7/24/09)
By Alison Veshkin

July 24 (Bloomberg) — Treasury Secretary Timothy Geithner defended the proposed Consumer Financial Protection Agency amid lawmaker criticism the regulator isn’t needed, and rejected calls by bank agencies to retain consumer oversight powers.

An agency is needed because the Federal Reserve, Federal Deposit Insurance Corp. and bank regulators failed to use their authority to shield consumers from lending abuses, Geithner said today at a House Financial Services Committee hearing. The agency needs the powers of other regulators to succeed, he said.

“If you give this agency only rule-writing authority but no enforcement authority, it will be too weak,” Geithner said. “Leaving in place with a bunch of different people enforcement authority that frankly was not well-used or deployed” wouldn’t work, he added.

Republicans and the banking industry have said the agency would limit consumer choice and access to credit. FDIC Chairman Sheila Bair said yesterday she would like to retain her authority to enforce rules aimed at shielding consumers.

Lawmakers and the Obama administration are debating the outlines of the proposal to revamp Wall Street rules, giving the Fed additional power to monitor companies that may pose a systemic risk to markets and expand regulation to products including derivatives.

House Financial Services Committee Chairman Barney Frank has endorsed the consumer agency because he said regulators haven’t used their current powers.

‘Depth of Understanding’

Representative Carolyn Maloney, a New York Democrat, suggested keeping rule-writing authority with bank supervisors while shifting the enforcement powers to the new agency.

Bank regulators have “the depth of understanding that it would take years for a new agency to learn,” Maloney said.

Comptroller of the Currency John Dugan, regulator of national banks, said bank agencies should retain their authority to examine and enforce rules.

“To the extent the banking agencies have been criticized for consumer-protection supervision, the fundamental problem has been with the lack of timely and strong rules — which the CFPA would address — and not the enforcement,” he said.

Bank oversight may be weakened by separating the authority to police banks for consumer protections from the process of monitoring the safety and soundness of the lenders, Bair said.

Geithner said it’s understandable the agencies are seeking to retain their authority.

They “have teams of dedicated, motivated, experienced people with that responsibility today,” Geithner said. “They are not enthusiastic about giving up that authority.”

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