White House hits out at plan to strip Fed powers

White House hits out at plan to strip Fed powers
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: November 13 2009 19:02 | Last updated: November 14 2009 00:09
http://www.ft.com/cms/s/0/a5757590-d083-11de-af9c-00144feabdc0.html


A Senate proposal to strip the Federal Reserve of its bank supervision powers met resistance on Friday from two senior Obama administration officials.

Chris Dodd, the Senate banking committee chairman, this week published draft legislation to merge four US banking regulators into one, with the Fed the most high-profile loser.

However, Austan Goolsbee, a White House economist, and Neal Wolin, deputy Treasury secretary, both pushed back against the plan yesterday as the administration adopted a more active approach to shaping the regulatory reform

“No regulator had a perfect record leading up to the crisis,” said Mr Wolin at the American Bar Association. “But in our view, the Federal Reserve is the agency best equipped for the task of supervising the largest, most complex firms.”

Mr Dodd’s bill goes further than a competing version in the House of Representatives and much further than the administration’s original ideas in creating a banking regulator to resolve what he called the “alphabet soup” of supervisors.

Financial regulation reform

Our interactive graphic explains the existing framework and proposed changes to financial regulation in the EU, US and UK

Staff drafting the bill tried to take account of fears that the Fed would be deprived of information necessary for ensuring financial stability and carrying out monetary policy. They sought to ensure that the central bank could get whatever information it needed from the largest US institutions at any time.

However, Friday’s speeches showed that their efforts had not proved sufficient to get the administration to back the plan, even though an official said last week that he was open to the idea.

“If they [the Fed] are not integrally involved with the actual regulation and oversight of the institutions, you can, if you do it wrong, get in to a left hand doesn’t know what the right hand is doing kind of problem in a crisis,” said Mr Goolsbee at a conference organised by the Bloomberg.

He said the Dodd plan seemed modelled on the UK’s Financial Services Authority and noted that “they had a lot of problems in the UK as well”, where the FSA acted separately from the Bank of England.

On Monday, the Senate banking committee will hear opening statements in support of its bill before a formal revision begins in December. If the bill is approved by the committee and then by the full Senate it will be combined with a House text before being signed into law by the US president. At any point, the single regulator proposal could be dropped.