This is the second panel of a House Financial Services hearing on bank regulators' views on the Obama administration's regulatory restructuring proposal. Treasury Secretary Timothy Geithner was alone on the first witness panel; he defended the plan. The bank regulators are expected to push back against the consumer protection regulators and, in some cases, the elimination of the thrift charter.
1:01pm: Federal Reserve Chairman Ben Bernanke is giving his opening statement. He's saying systemically important institutions should be subject to special regulation. There should be "a more macro-prudential" perspective for that area of regulation, too.
Bernanke is running through ways to deal with systemically important firms, with a resolution authority that lets the government impose haircuts on creditors and counterparties.
1:03pm: Bernanke spent most of his time on the systemically important regulation issues and skipped right over consumer protection. He says there's definitely a need for better consumer protection and supervision of international firms, but he isn't offering details. He ends by saying decisions by committee aren't efficient.
1:06pm: Federal Deposit Insurance Corp. Chairman Sheila Bair has begun her remarks. Will she also demur, as Bernanke did, from criticizing the consumer protection proposal?
"To end too big to fail, we need" a resolution mechanism, Bair is saying. It should by funded by assessments.
We also need "a better structure for supervising systemically important instutions." She backs the oversight council--a difference from Bernanke's assertion that the council wouldn't work.
Bair: "The FDIC strongly supports the creation of a new consumer protection agency," she says, "the administration's proposal would be even more effective if it included tougher oversight" for non-bank financial institutions. But Bair says she doesn't support taking away consumer protection oversight from bank regulators. It would be too disorganized, she says.
1:09pm: Comptroller of the Currency John Dugan is up now. "The OCC supports many elements of the proposal," he says, including a systemic risk monitoring council. And a resolution authority. And the Fed's role as a consolidated supervisor.
1:11pm: Dugan says giving the Fed the power to override bank supervisors' authority goes "much too far."
Dugan: "We support the proposal to effectively merge the Office of Thrift Supervision with the OCC," Dugan says. He adds that the OCC supports an agency like the consumer protection agency but he does not like the idea that consumer protection oversight would be taken away from the banking agencies. "I believe it makes sense to consolidate all consumer protection rulewriting," he says. But "bank supervisors must have meaningful input into the process."
He doesn't like the idea of repealing federal preemption. "This repeal of the uniform federal standards option is a radical change," he says. "These costs will ultimately be borne by the consumer."
1:14pm: The consumer protection rules don't give bank supervisors enough authority. The bank regulators should have more board seats on the new agency, Dugan is saying.
1:16pm: OTS Director John Bowman has begun his remarks. "The OTS supports the fundamental objectives at the heart of this proposal," he says. But does each proposed change address a real problem in the financial system? "One federal agency whose central mission is the regulation of consumer financial products should" have rule writing authority for all consumer products, Bowman is saying. The new agency should have enforcement authority over non-banks.
Bowman: We also have to close regulatory gaps. And address "too big to fail." The government should not have to prop up too big to fail companies.
1:19pm: Wow. Bowman did NOT voice an explicit objection to getting rid of the OTS.
1:21pm: North Carolina Banking Commissioner Joseph Smith, Jr., is has begun his remarks. He says the too big to fail proposals don't go far enough. And that the consumer protection agency wouldn't give states enough authority to make their own consumer protection rules.
1:24pm: Rep. Brad Sherman, D-Calif., is saying he doesn't want the new consumer products regulator interfere with the relationships between attorneys, accountants and their clients.
Sherman thinks the new consumer products regulator should enforce the law; not write it.
Sherman: On credit rating agencies, it's not so important who paid the credit rating agencies for a particular rating, but who selected them.
1:27pm: Sherman says the President should appoint regional Fed presidents. He also says all naked swaps should be banned.
1:29pm: Sherman wants Bernanke to say whether there could be a limit on future bailouts of systemically important companies.
Bernanke has begun to respond to him. "I do not support presidential appointments of regional Fed presidents," he says. On limits of bailouts, "I would certainly be open to subordinate the 13.3 authority to the requests of the resolver."
1:30pm: Rep. Michele Bachmann, R-Minn. is up now. She wants to know whether the General Accountability Office to audit the Fed.
Bernanke replies that the GAO has authority over almost all of the Fed's lending authorities and financial management programs anyway. "The concern that I have with the bill" to oversee the Fed, he says, is that it doesn't exempt monetary policy decisions from audits.
Bachmann: So, no?
Bernanke: The GAO can have broad authority, just not over monetary policy?
Bachmann: I'm worried about how the reg restructuring proposal fails to address the government sponsored enterprises.
Bair: None of us has much to do with the GSEs.
1:35pm: Bachmann, on resolution authority: Geithner said that the post-resolution assessment will improve moral hazard. But if other people have to pay for it, how is that true? What about the creditors?
Bernanke: We support a haircut for the creditors.
1:37pm: Rep. Gregory Meeks, D-N.Y. has asked about the effects of the financial crisis on emerging market economy. Wow. This committee is not usually so outwardly focused.
Bernanke is giving him a quick report on emerging market economies. He says their troubles won't affect the U.S. much.
Meeks: How would we be able to handle another Lehman Brothers?
Bair: With the resolution authority.
1:43pm: Rep. John Campbell, R-Calif., is asking Bernanke about how many firms would receive systemic oversight supervision. And if a firm didn't want to be scrutinized as systemically important, it could just spin off parts of itself and downsize, right?
Campbell: Hey regulators, do you all agree that the consumer products regulator's enforcement authority is wrong, that the authority should be somewhere else?
Everyone nods. Rep Barney Frank, D-Mass., reminds them that the Congressional recorder cannot hear nods.
1:47pm: The hearing is adjorning in a rather disorderly fashion. Bachus jumps in as Frank is closing and says he wants Bernanke back before them in September. Frank agrees before pounding the gavel.