- The Washington Times - Friday, July 24, 2009

The Treasury Department and the Federal Reserve continued their public disagreement Friday regarding how the nation’s financial services industry should be regulated.

Treasury Secretary Timothy F. Geithner told the House Financial Services Committee that the Obama administration’s plan for moving consumer protection duties from the Fed and other regulators to a new independent agency devoted solely to consumer protection is needed to prevent a repeat of last year’s near meltdown of Wall Street.

“Our patchwork, antiquated, Balkanized, segmented structure of oversight responsibility created large gaps in coverage, allowing institutions to shop for the weakest regulator, (and) left authorities without the capacity to understand and stay abreast of the changing nature of risk in our financial system.” Mr. Geithner said.

But Federal Reserve Chairman Ben Bernanke, in prepared remarks submitted in advance of his scheduled afternoon appearance before the committee, said that stripping his agency of regulatory powers in an attempt to streamline oversight of financial markets could have damaging consequences.

Mr. Bernanke said the Fed in the last three years has adopted strong consumer protection measures in the mortgage and credit card industries, and that those new 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.

“Involving all these forms of expertise is important for tailoring rules that prevent abuses while not impeding the availability of sensible extensions of credit,” Mr. Bernanke added.

Republican and Democratic members of the committee also are split on the merits of creating a new consumer financial protection agency.

“Adding new regulation to new bureaucracy does not create a regulatory reform,” said Rep. Randy Neugebauer, Texas Republican.

But panel Chairman Barney Frank, Massachusetts Democrat, said “the notion that the existing institutional structure protects consumers adequately, I think, is a mistake.”

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