- The Washington Times - Thursday, June 18, 2009

Treasury Secretary Timothy F. Geithner defended the administration’s plan to increase the Federal Reserve’s powers on Thursday, saying the agency is best positioned to become a super-regulator that would oversee financial firms deemed “too big to fail.”

“It already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks,” Mr. Geithner told the Senate Banking, Housing and Urban Affairs Committee. “Our plan gives a modest amount of additional authority - and accountability - to the Fed to carry out that mission.”

The secretary’s appearance on Capitol Hill came a day after the Obama administration unveiled sweeping regulatory reforms of the nation’s financial system - a plan widely criticized on Wall Street.

The secretary dismissed the idea of creating a council of regulators - an idea pushed by some on Capitol Hill - saying that it wouldn’t be as effective to quickly respond to financial emergencies.

“You don’t convene a committee to put out a fire,” he said.

The administration is proposing a Financial Services Oversight Council that would bring together the heads of all of the major federal financial regulatory agencies. But Mr. Geithner said the council’s goals would be to “fill gaps in the regulatory structure where they exist” - not to serve supervise the largest, most complex and interconnected financial institutions.

“The reason is simple: that is a specialized task, which requires tremendous institutional capacity and organizational accountability,” Mr. Geithner said.

Mr. Geithner tried to sooth concerns that the plan would overburden the Fed, saying that the plan relieves the agency of consumer protection duties, which would be given to a new entity called the Consumer Financial Protection Agency.

“Before this crisis many federal and state regulators had authority to protect consumers, but few viewed it as their primary charge,” he said. “This lack of oversight led millions of Americans to make bad financial decisions that emerged at the heart of our current crisis.”

Several senators said they agreed that beefing up consumer protections is vital to securing the nation’s economic stability.

“This is simple common sense,” said Committee Chairman Christopher J. Dodd, Connecticut Democrat. “We don’t allow toy companies to sell toys that could hurt our kids. … Why should an unscrupulous lender be allowed to dupe a borrower into a loan the lender knows can’t be repaid?”

Mr. Dodd added that he was upset with Wall Street criticism that the administration’s reform plan goes too far, particularly its plan for a new consumer protection agency.

“What planet are you living on?” he said. “The very people who created the … mess are the ones now arguing that consumers ought not to be protected.”

“The idea that you’re going to, first of all, attack the very clients and customer who depend upon you every day is not the place to begin.”

The committee’s top Republican, Sen. Richard C. Shelby of Alabama, said he was concerned that increased regulations of the nation’s financial institutions could handcuff Wall Street and stifle the free market.

“Private markets still provide the best means for achieving our full economic potential,” he said. “Risk taking is an essential ingredient in those markets.”

But even Mr. Shelby and the other Republicans on the panel agreed with the administration that reforms are needed to better police the nation’s financial institutions.

“The president has put forth a plan. It deserves our careful consideration,” he said.

Mr. Geithner said the federal government’s financial regulatory system should have done more prevent the economic crisis.

“Our financial system failed to perform as it should have - by distributing and reducing risk,” he said.

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