WASHINGTON — Federal bank regulators sparred before Congress on Friday, trying to maintain their current powers as the Obama administration seeks to strip them of the authority to regulate consumer credit and give it to a new watchdog agency.
The heads of the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency all testified for and against portions of the administration's complex proposals to revamp the regulation of the financial sector with an eye toward protecting consumers.
These agency chiefs took a back seat to Treasury Secretary Timothy Geithner, who warned that their concerns reflected agencies interested in guarding turf.
"They are not enthusiastic about giving up that authority," Geithner told the House Financial Services Committee.
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Geithner proposes creating a Consumer Financial Protection Agency, which would have the power to write and enforce rules governing consumer credit, including mortgages, credit cards and payday loans. His reasoning? At least seven or eight federal agencies had some responsibility for protecting consumers from fraud and predatory lending and failed to do so adequately.
Weakened lending standards and poor policing of Wall Street allowed for an explosion of consumer credit earlier this decade. This led to a collapse of home prices, record credit card defaults and a global financial crisis.
Federal Reserve Chairman Ben Bernanke argued Friday that the writing of rules for consumer credit should remain in the hands of the Fed.
"In the last three years, the Federal Reserve has adopted strong consumer protection measures in the mortgage and credit card areas," he said "These regulations benefited from the supervisory and research capabilities of the Federal Reserve, including expertise in consumer credit markets, retail payments, banking operations, and economic analysis."
FDIC Chairman Sheila Bair suggested that enforcement shouldn't be farmed out to a new watchdog agency.