The powerful chairman of the House Financial Services Committee supports a “council of regulators” to monitor the health of large financial institutions as part of a package of reforms Congress will begin to consider later this month, a person familiar with the matter said.
Rep. Barney Frank (D-Mass.) has begun sharing his views on possible measures designed to prevent future financial meltdowns, the source said. The Obama Administration is working on its own reform proposals, which it is expected to send to Capital Hill within two weeks.
The source said Frank’s views are preliminary and fluid, and that they could change as the Administration continues its work and as the legislative process moves forward.
A regulatory council would monitor firms that pose a “systemic risk” to the financial system. It would bring together the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and other financial market supervisors in a coordinated, umbrella entity.
Frank’s support for the idea could dash proposals to give such powers to the Federal Reserve. While the administration has signaled support for making the Fed the sole systemic risk regulator, Frank’s counterpart in the Senate, Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, favors the regulatory council idea.
According to the source, Frank also favors giving existing bank supervisors new powers to close failing institutions without putting them into bankruptcy. Some policymakers have called for giving such powers solely to the FDIC, which currently can take over failing banks but does not have authority to take over larger, more complex financial firms like AIG. Under Frank’s preliminary plan, the FDIC would assist “primary regulators” in winding down a failed concern, helping them sell assets, merge operations with stronger and take other steps.
Such power-sharing arrangements for monitoring systemic risk and closing failed firms could quell emerging turf battles among regulators and speed Congressional approval of compromise proposals.
Frank also backs creating a new government entity to improve consumer protections in the sale and marketing of consumer financial products such as mortgages, credit cards and mutual funds, the source said. Some members of Congress have introduced legislation to create a “Financial Product Safety Commission,” modeled after the existing Consumer Product Safety Commission.
A spokesperson for Frank said, “We do not comment on rumor or hearsay such as this. All this speculation is not only unproductive--it is premature, given the President has yet to introduce his proposal.”
