Regulators Testify on ReformsBanking regulators testified on the consolidation and regulatory reforms in front of the Senate Banking Committee on Tuesday, pressing their case to give a council of regulators -- not just the Federal Reserve -- the broad authority to oversee systemically at risk institutions. FDIC's Chairman Sheila Bair testified that these institutions, if they collapsed, would cause collateral damage to the wider market.
Bair says the council should have the "authority to look broadly at our financial system and to set minimum uniform rules for the financial sector." She expressed opposition to the idea of setting up a single bank regulator model. She argues the financial systems of Hungary, Austria, Belgium, Iceland and the United Kingdom suffered in the crisis despite their single regulator approach.
John Dugan, the Comptroller of the Currency, told the Senate Banking Committee the OCC supports many elements of the Administration's regulatory reform proposal, including the establishment of a council of financial regulators to identify and monitor systemic risk. However, he expressed concern about some aspects of the plan, including weaknesses in the proposal for a Consumer Financial Protection Agency (CFPA).
"It makes sense to consolidate all consumer protection rule writing in a single agency, with the rules applying to all financial providers of a product, both bank and nonbank," he says. "But we believe the rules must be uniform, and that banking supervisors must have meaningful input into formulating them. Unfortunately, the proposed CFPA falls short on both counts."
Dugan says he supports making the Federal Reserve the consolidated supervisor of systemically important firms, but the Fed should not be allowed to override the primary banking supervisor on standards, examination, and enforcement applicable to banks. This power, he says, "would fundamentally undermine the authority and accountability of the banking supervisor and unwisely extend the role of the Federal Reserve."
The OCC also supports proposals to merge the OTS into the OCC with a phase-out of the thrift charter. Dugan sees further regulatory consolidation could bring significant potential benefits, but would carry potential costs as well, especially if the Fed were to be removed from holding company regulation of systemically important firms.