MADELEINE BRAND, host:
So far this year, there have been nearly 30 congressional hearings on financial regulatory reform - a lot of talk and not a lot of action. The White House issued its own overhaul plan back in June. Central to it, the Federal Reserve would be the primary overseer of financial risk. There are lots of critics of that, including the smaller regulatory agencies that would lose power or even cease to exist. The administration is trying to reign in those dissenters but so far unsuccessfully.
NPR's Yuki Noguchi reports.
YUKI NOGUCHI: The same people sitting before the Senate committee on banking, housing, and urban affairs had days earlier been summoned to the Washington equivalent of the principal's office. On Friday, Treasury Secretary Timothy Geithner unleashed an expletive-laced tirade on the country's top financial regulators. According to the Wall Street Journal, he was angry that their disagreement with some aspects of the financial overhaul could possibly derail reform efforts altogether. For Republicans, this bit of news was like red meat. Senator Bob Corker of Tennessee asked the panel to verify the newspaper's report.
Senator BOB CORKER (Republican, Tennessee): Generally speaking, did it capture the essence of the attitude in the meeting?
(Soundbite of laughter)
NOGUCHI: FDIC Chair Sheila Bair demurred, leaving John Dugan, the Comptroller of the Currency, to shift uncomfortably in his seat.
Mr. JOHN DUGAN (Currency Comptroller, Department of Treasury): I - Senator, it was a candid conversation about institutions, I mean, our agency's different views on the different subjects and I…
Sen. CORKER: It was a generally fair article.
Mr. DUGAN: There must - a lot of it was true.
Sen. CORKER: Okay. So here's…
NOGUCHI: If Geithner hoped his lecture would quell dissent, it didn't turn out that way. Regulators reiterated their misgivings with the administration's plan. Bair, who heads the Federal Deposit Insurance Corporation, told the committee she supports much of the administration's plan, including the creation of a body to regulate consumer financial products. But, she said, consolidating regulation under the Fed comes with its own risks.
Ms. SHEILA BAIR (Chairwoman, FDIC): I think if you have a single-monopoly regulator there can be - that contributes to regulatory laxities as opposed to having competition among regulators.
NOGUCHI: Bair's assessment runs directly counter to one of the administration's main points. It argues that by strengthening the Fed's ability to oversee all risk in the financial system that can help shut down loopholes that help some financial regulations escape regulatory scrutiny. But given that that plan would take power away from some of the smaller agencies, Montana Democrat Jon Tester noted that Bair and Dugan might be on the defensive.
Senator JOHN TESTER (Democrat, Montana): Taking off your hat is your individual department leaders, because I know turf does play a role. I mean, if somebody said I'm going to dissolve your farm, I'd be a little upset with it. But just tell me how we can get these gaps closed without doing something like this and why this wouldn't be a good idea.
NOGUCHI: On this count, the panelists appeared to find agreement. You need uniform standards so banks cannot go shopping for the most lenient regulation. Daniel Tarullo is on the board of governors of the Federal Reserve. He also said today's economy is global and far-reaching, so ensuring financial stability across the system would require a supervisor over the major institutions. Ranking member Richard Shelby from Alabama, among others, pointed out the Fed already had much of that authority, even before last year's financial crisis. It simply failed to employ it. Tarullo, a newcomer to the Fed, didn't deny this.
Mr. DANIEL TARULLO (Board of Governors, The Federal Reserve): I really do believe there's plenty of blame to go around everywhere, but I don't honestly think that all roads lead to the Fed on this. I mean, Bear Stearns…
Senator RICHARD SHELBY (Republican, Alabama): Well, which don't lead to the…
Mr. TARULLO: Well, I would say…
NOGUCHI: Tarullo said that many places had failed and that is why the Fed and everyone else needs to change.
Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
