WASHINGTON — House Financial Services Committee Chairman Barney Frank tried to put Republicans on the defensive Thursday over their opposition to a new consumer protection agency, arguing that the politically unpopular Federal Reserve Board would be the greatest beneficiary of this position.
Under Frank's plan, "the greatest loser of power … is the Federal Reserve," the Massachusetts Democrat said during a hearing intended to probe the central bank's thoughts on regulatory reform. "Those who resist taking consumer protection powers and putting them into a separate agency are de facto the greatest defenders of the Federal Reserve."
Frank's comments came amid criticism that the Fed was absent from consumer protection early in the decade and, after facilitating numerous bailouts, now stands to emerge from the financial crisis with even more power. Democrats are pushing legislation that would strip consumer protection responsibilities from the banking regulators and vest these powers in an agency that would have the authority to rule on the types of financial products and activities that could be introduced to the market. The Fed has taken no official position on the concept but stands to lose a sizable chunk of its staff if the proposal were enacted.
Republicans answered Frank by arguing that their concern is not related to the Fed but to the power the new consumer agency would wield. "We do not object to consumer protection being removed from the Federal Reserve," said Rep. Spencer Bachus, the panel's top GOP member. "What we do object to and what we strenuously think would be a mistake is what you do with consumer protection. You vest it in a new government agency, and you give it … power to limit choice."
For his part, Fed Chairman Ben Bernanke, who testified at the hearing, made clear that it was up to Congress to figure out how to proceed. "That's Congress' judgment about whether the Federal Reserve could be sufficiently focused, and I think we are very competent," he said. "We have the skills and mix of talent to do a very good job here. I think the issue is the confidence the Congress has in our focus going forward."
Though some published reports said that Bernanke has also changed his tune on a proposed systemic risk regulator, favoring the creation of an interagency council, the central bank chief's views do not appear to have changed.
"To encourage a more comprehensive and holistic approach to financial oversight," he said, "all federal financial supervisors and regulators - not just the Federal Reserve - should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities," he said.
Bernanke has long endorsed an administration plan that would create an oversight council to advise the Fed on systemic risk.
"A council with broad representation across agencies and departments concerned with financial supervision and regulation" could be helpful, Bernanke told lawmakers during a July 24 hearing. Asked whether he shifted Thursday, Bernanke emphasized that "my position has not changed at all."
The Fed chief also was asked about a plan unveiled this week by the Federal Deposit Insurance Corp. to require banks to prepay three years' worth of assessments in order to shore up the Deposit Insurance Fund. He stopped short of endorsing the plan but said the FDIC had few good options to choose from. "The FDIC has some tough choices because it's trying to repair the fund without creating a procyclical effect," he said.
Rep. Tom Price, R-Ga., pressed Bernanke on whether banks are effectively "counting a dollar twice" since the prepayments would be counted as a depreciating asset.
"The banks would have to make this payment at some point in the future," Bernanke responded.