WASHINGTON — Though House Financial Services Committee Chairman Barney Frank has already said the Federal Reserve Board should be given systemic risk oversight, a panel hearing on the topic Tuesday showed that adding such powers remains a tough sell.
The Massachusetts Democrat said he plans to start drafting a bill in early May with the goal of moving legislation shortly thereafter. But questions remain on how to shape such reform and whether such responsibilities should come at the cost of shedding others.
During the hearing, lawmakers from both sides of the aisle raised concerns about giving the Fed unfettered new powers, and even industry representatives were divided over the appropriate role for the central bank.
Rep. Mel Watt, D-N.C., said he is concerned that empowering the Fed with systemic risk functions would clash with monetary policy and consumer protection responsibilities.
"I'm beginning to have second thoughts," Watt said. "I don't know how you have a systemic regulator who also has day-to-day regulatory authority without shielding that regulatory authority in some way."
Watt suggested it might be better to create a new regulator or take away some of the Fed's existing powers. "I'm not sure it wouldn't make more sense to go ahead and actually create a separate entity," he said.
Though several of the panel's most conservative Republicans questioned whether a systemic risk regulator could be created without perpetuating the string of government bailouts, others focused more on how to carve up the Fed's role.
Picking up on Watt's line of questioning, Rep. Mike Castle, R-Del., asked "if the Fed should give up some powers in order to take on systemic risk regulation."
Steve Bartlett, the president of the Financial Services Roundtable, said he supports consolidating supervisory powers outside the Fed.
"We do recommend that the regulation of state-chartered banks be moved over to the bank regulator," Bartlett said. "We struggle with this; we do think that the bank holding company regulator should stay at the Fed."
But Ed Yingling, the president and chief executive of the American Bankers Association, said the Fed should give up regulation of holding companies of smaller institutions.
"It really makes no sense to have the Fed regulate the holding company of a $100 million bank that is regulated by the FDIC, state or even the comptroller," Yingling said. "A lot of time the holding company is nothing more than a shell."