WASHINGTON — Robert P. Kelly, Bank of New York Mellon Corp.'s chairman and chief executive, said the government should end its ownership of Fannie Mae and Freddie Mac and called for increased resolution authority to dismantle large banks.
Speaking at the National Press Club, Kelly questioned the need for the government-sponsored enterprises and said the government should play no role in the mortgage market.
"The federal government … really has to come to the realization that it needs to get out of the business," Kelly said. "Government involved in the residential business creates too many distortions and potentially bad behavior. And it's really the only lending asset class the government owns."
Lawmakers will begin to debate the future of the housing finance system at a hearing on March 23.
Though the Obama administration had promised to develop a plan by last month, Treasury Secretary Tim Geithner has said it does not intend to release a concrete proposal until 2011. Instead, the administration will release questions for the industry and public to weigh in on.
Kelly opted to voice his opinions early, saying other countries that do not have enterprises like Fannie and Freddie have a higher homeownership rate.
"On the mortgage front there are multiple ways you can do it, but in the end I don't think the federal government should or needs to own the GSEs," he said. "The question would be is there a role for the GSEs in the future, and that's still an open question."
Kelly made it clear, however, that he still supports a secondary market for mortgages, just not one dominated by government entities.
"I don't bank balance sheets are large enough in America to fund the entire residential mortgage market, so we are going to need to get the securitization market going again," he said. "And that's the debate we have to have, and what is the best model? Do you merge the GSEs together? Do you make them a public utility of the banking system? Do you even need them at all? And that's an open question in my mind. [C]ertainly most countries around the world don't have them."
Kelly also said he supported regulatory reform proposals to beef up the government's resolution powers.
"Of all the many, many proposals you've been reading about, by far the most important one we have to deliver on is a wind-up authority," he said. "That is to say, we can never allow ourselves as a country to go into a situation where we have a collapse like Lehman Brothers."
He objected to a House provision, however, that would assess a fee on large companies before a systemic failure. The House reform bill passed in December would create a $200 billion fund, and Senate lawmakers are weighing the creation of a $50 billion fund.
"In the end I think it's a bad policy idea and the question is whether … by creating a fund … that would imply that there are banks that are 'too big to fail,' " Kelly said.
"I think that's a bad policy mistake.
"The second thing is I think it actually increases creates risk to the system. If you create the fund to basically pre-fund a future failure, I think other companies and financial institutions will take more risk with those companies because they know this big fund exists to bail them out."
