- The Washington Times - Saturday, July 25, 2009

The Treasury Department and the Federal Reserve continued their public squabble Friday over a proposed consumer protection agency.

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 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,” Mr. Geithner said.

The administration says its proposed Consumer Financial Protection Agency would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

But Federal Reserve Chairman Ben S. Bernanke, in prepared remarks submitted to the committee, repeated statements he made earlier this week that stripping his agency of consumer regulatory powers could hurt the economy because “risk assessment and compliance monitoring of consumer and prudential regulations are closely related.”

Mr. Bernanke said that during his tenure at the Fed the agency 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.”

The Fed has been criticized for failing to rein in aggressive mortgage lenders during the recent housing bubble.

Mr. Bernanke largely sidestepped the subject of a new consumer protection agency during his afternoon appearance before the committee, saying cryptically that “collective bodies of regulators can serve many useful purposes.”

Mr. Geithner said it was understandable that Mr. Bernanke would want to protect his regulatory turf, saying he is just defending the “traditional prerogatives” of his agency.

Mr. Bernanke’s term expires early next year, at which time President Obama will have to decide whether to reappoint him. The chairman took over the Fed in February 2006 after being appointed by President George W. Bush.

Republican and Democratic members of the committee 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.”

House Republicans on Thursday introduced an alternative to the administration’s plan that calls for significant reforms to the Fed, including stripping the agency of its authority to unilaterally give aid to specific institutions. The Fed, under the Republican plan, only could provide bailout money with approval from Treasury and Congress.

Mr. Frank said he will delay a vote on whether to create a new protection agency until after the August recess to give critics more time to respond.

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