AN INFLUENTIAL US Senate committee has proposed a sweeping overhaul of the country’s regulatory architecture that would strip powers from the Federal Reserve and create a single banking regulator.
Chris Dodd, chairman of the Senate banking committee, yesterday presented a more radical vision of regulatory reform than that proposed by the Obama administration. The move ushered into the open a behind-the-scenes struggle between banks, policymakers and regulators.
Democrats lined up behind Mr Dodd as he presented the Bill.
But senior Republicans were missing from a press conference, despite attempts by President Barack Obama to secure their support for one of his most important legislative goals.
The proposal to consolidate regulators faces opposition from the Fed, the Federal Deposit Insurance Corporation and smaller regulators who argue that they are best placed to supervise banks.
Mr Dodd said most institutions should benefit from a regulator that would provide “clarity, cut red tape and make it easier to compete”, but that banks would “no longer be able to shop for the weakest regulator”.
Viral Acharya, professor of finance at the Stern School of Business at New York University, said he thought the idea of a single bank regulator was a bad idea. “I think it’s going to be too huge an overhaul of what exists,” he said. The Fed and FDIC need to keep supervisory functions to inform their other roles, he argued.
An Obama administration official said last week that he was open to the idea of consolidating bank regulators, even though that went much further than initial plans from the Treasury.
The Senate draft legislation also creates an agency to oversee systemic risk, which could call for banks to be broken up if they threatened the entire financial system, and impose tougher capital requirements. It also stops short of forcing the break-up of healthy banks, which has been advocated by some economists.
Republicans declined to support the proposed legislation, with a proposed Consumer Financial Protection Agency proving an insurmountable obstacle. – (Copyright The Financial Times Limited 2009)
