WASHINGTON — Revamping the nation's oversight of financial services is going to be far tougher than most people realize, according to Rep. Mel Watt, a senior member of the House Financial Services Committee.
In an interview Thursday, the North Carolina Democrat agreed that restructuring was a critical issue facing the next Congress, but he said logistical, turf, and other obstacles would likely hamper the process. The first and most serious issue, he said, was that while policymakers realize there is a problem, there has been no accord on a solution.
"Everybody agrees that something ought to be done, but nobody agrees on what ought to be done," he said. "There seems to be little or no consensus."
The only concrete plan, he said, came in March from Treasury Secretary Henry Paulson, who suggested reducing the patchwork of regulators to three, phasing out the thrift and credit union charters, and eliminating the dual banking system.
But Rep. Watt and others have pointed out holes in that plan. In the meantime, no viable alternative has emerged.
"At the last hearing I was the one asking the witnesses the very pointed question: You don't like the secretary's proposal … what is it that you would like to do?" he said. "And I couldn't get any of those witnesses to really answer that question. … Nobody has given me a framework that they would substitute for the existing one."
Another issue, he said, is ensuring policymakers involved in recommending a new system are doing so without regard to turf. He said agency heads are so concerned about preserving their jobs that it is difficult to have an honest conversation about what needs to change.
"I've already seen a lot of turf protection as opposed to public policy," he said.
Further complicating matters is that lawmakers are hardly above the fray, he said. As Congress moves to pass a regulatory reform bill, several committees are likely to want a piece of the action, which will inevitably bog the process down.
"We've got duplication in our own oversight structure … in the House, so we've got a problem with that," Rep. Watt said.
"One of the ideas that came up about how to address that was to put together a select committee that overlaps jurisdictional bounds, and that has some appeal. But knowing our own institution, the House institution, it also has some problems."
For example, the House Agriculture Committee oversees derivatives, which will likely be part of the discussion. He also cited a "long-simmering feud" between House Financial Services and the House Commerce Committee. At the end of 2000, the then-Banking Committee was given much more jurisdiction, to the detriment of Commerce.
"If you start setting up a select committee, I can assure you that you would have to put representatives of a number of different committees on it," Rep. Watt said. "It wouldn't just be Financial Service and Agriculture — and that's one of the problems with it. People would assert that they have jurisdiction over this."
Rep. Watt said the House Oversight Committee, which has been holding hearings on the financial crisis, also would clearly want to be involved.
"That's four committees right there … and then all of these things have legal implications — so Judiciary is obviously going to be a player if you start talking about this," he said.
"That's where you get into problems and that's where it gets a little more complicated than just saying it's a great idea to set up a select committee."
Even if Congress can set up a new structure, he said, there is no guarantee that fixes the problems in the financial services industry. He said regulators already fell short of taking necessary steps with their current responsibilities, and he wondered if that would change if they had new ones.
"This turned out to be a problem of lack of regulation by anybody in any structure," he said. "So if you are going to replace the regulatory structure with people who aren't willing to regulate where it's necessary to regulate, having the better regulatory structure doesn't help you much unless you have the right people in it."
That will make it particularly critical whom President-elect Obama names in a new administration, he said. But Rep. Watt also raised broader concerns about competition between regulatory agencies resulting in less regulation.
"To some extent there was competition between the existing regulators, which was a rush to the bottom: 'Let me regulate less so I can attract more people under my jurisdiction to regulate,' " he said. "We certainly ought not allow that to happen, whatever structure we have. There needs to be aggressive, knowledgeable people in the regulatory structure who are going to do a job of not gratuitous regulation, but necessary regulation, and be out ahead of the curve, not behind the curve."
What role Rep. Watt will play in the debate is uncertain. Currently he is chairman of the House Financial Services oversight subcommittee, but he may leave that post to run a subcommittee on the Judiciary Committee. He has been a member of both panels for 16 years and said he plans to be heavily engaged in both.
"I have to wait for all of the dominoes to fall in front of me before I see what options become available, but I'm not going to get into a rift with anybody about what's in front of me in seniority on either committee," he said. "I'm just kind of waiting to see what other people do before I start making plans either in terms of what subcommittee I would like to chair or what that agenda may be."
He said he continues to have concerns about the implementation of the Treasury Department's emergency economic stabilization efforts.
He plans to ask regulators during a hearing scheduled for next week why more has not been done to stem foreclosures faster.
Rep. Watt said the capital injection plan morphed from when it was first unveiled Oct. 13. At that time it was intended to help banks start lending again. Now the Treasury's money appears to be helping banks make acquisitions.
"We all have some concerns about the kind of helter-skelter change of direction," he said. "It started out being something that was aimed primarily at lending and stopping foreclosures, and it seemed it turned at some point more in the direction of making investments in some of these institutions."
He said the intent of the rescue bill enacted Oct. 3 was to "loosen credit and to assist people who were being threatened with foreclosures."
"One of the things we'll need to determine," he said, "is whether we'll need to tighten the language legislatively or if the language is sufficiently tight that we can just demand that the secretary of Treasury and the other regulators apply it more vigorously to achieve the objectives that we intended to have it achieve."