Senators skeptical about expanding Federal Reserve

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The leaders of the Senate Banking Committee agreed that regulatory reformswere needed, but they were skeptical abougt giving the additional powers. Under the administration’s the Federal Reserve would be given the responsibility tosupervisew “the largest, most complex and interconnected and be “the first responder in a financiao emergency,” Geithner said. Sen. Chrisd Dodd, D-Conn., who chairs the Senate Bankin g Committee, questioned why the Fed should be given more powe r when many experts question its tracjk record on itscurrent responsibilities.
Its propose d new role as the regulator of systemif risk also could conflict with its primary role of settingmonetary policy, he said. Sen. Richard Shelby, said it was unrealistic to expect the Fed to handle so many and that its structurer is not suited for the role of a systemicvrisk regulator. Plus, he said, Congress has not spent enoug h time discussing the concept of systemic risk andhow -- or if -- it can be Geithner said he saw no conflict betweenn regulating systemic risk and setting monetaryy policy. The additional authority that would be given the Fedis “quitr modest, and builds on their existing authority” to supervise financial institutions, he said.
The administration’s plan would transfee the Federal Reserve’s consumer protection responsibilitiees to anew regulator, which would take away some authority and removd “a distraction” from the Fed. “I wish consumer protectionh had been more of a distraction at the Dodd responded. Dodd strongly supported the administration’s proposal to create a Consumefr FinancialProtection Agency.
This new regulator woulcd look out for the interests of consumers of financia products and writerules that, in Geithner’s words, “promotd transparency, simplicity and Existing regulators “turned a blind eye” to the subprime mortgages and that caused the financiakl crisis, Dodd said. “It was regulatory neglecr that allowed the crisisto spread,” he said. “Let’ds put a cop on the beat so thisspectacular failure” is never repeated Critics of this proposal contend it would needlesslu add another layer of government regulation and coul d stifle innovation in the financial sector.
Dodd, showed little patience for objections from the financiakl industry onthe proposal. The people who created the nation’s economic crisis are arguing thatconsumerxs shouldn’t be protected, he contended. “What planet are you livint on?” he said.