Treasury, Fed dispute on display in Congress
WASHINGTON — Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are squaring off in a public dispute over who should become the nation’s top consumer watchdog.
Geithner wants to strip the Fed of its consumer protection duties and create a new federal agency designated solely to such a mission. Bernanke says those responsibilities should stay with the central bank and has suggested he is up to the task by outlining new rules for mortgage lenders.
Both officials were scheduled to make their cases Friday in back-to-back testimony before the House Financial Services Committee.
“We believe we can continue to do good work in this area” of consumer protections, Bernanke said on Capitol Hill this week.
Bernanke was expected to tell the Financial Services panel that the Fed’s roles in ensuring bank soundness and protecting consumers are complementary and that they give regulators valuable insight into the behavior of both banks and their customers.
Bernanke’s push back comes as he’s nearing the end of his term. After it expires early next year, President Barack Obama will have to decide whether to reappoint him. Bernanke, an appointee of President George W. Bush, took over the Fed in February 2006.
House Democrats say they are committed to advancing Geithner’s proposal, although the effort has slowed amid industry opposition.
Financial Services Committee Chairman Barney Frank, D-Mass., delayed plans to consider the proposal this month until after Congress returns from its August recess. Nearly two dozen industry groups had written to Frank objecting to the legislation and warning that it was too broad.
Frank said he believes the bill has enough support to win approval but agreed to slow down to give the opposition a chance to weigh in.
“They’ve invited a national debate that I want to have,” he said.
The proposal to create a consumer protection agency is part of a broader overhaul of the nation’s financial rules. The agency would monitor the fine print on such products as credit cards and mortgages. Such oversight is now scattered among the Fed and other agencies.
House Republicans have offered an alternative. Their bill would strip the Fed of its regulatory role and abolish the Office of the Comptroller of the Currency and the Office of Thrift Supervision. In their place would be a single regulator for depository institutions, which would include an office focused on consumer protections.
The Obama administration counters that its proposed agency could monitor nonbank institutions too, ensuring there aren’t any gaps in oversight.
The administration’s plan also would tap the Fed to be the regulator of huge, globally interconnected financial companies whose collapse could endanger the entire U.S. financial system and the broader economy.
Both Democrats and Republicans on Capitol Hill are leery of giving the Fed additional powers when they think its regulatory oversight of banks and risky mortgages led to the current financial crisis.
Associated Press writer Jeannine Aversa contributed to this report.
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