|In testimony before the panel, Treasury Secretary Timothy Geithner defended the proposal as the nation's best option.|
Senate skeptical of financial oversight plan
WASHINGTON - Senators sharply questioned yesterday whether President Obama’s plan to increase oversight of banks and other financial institutions was enough to prevent another economic meltdown.
The senators’ skepticism suggests the proposal was headed for a rewrite by a Congress sensitive to voter frustration with the government’s handling of the economy.
“They’re very angry, and they are worried. And they are wondering who’s looking out for them,’’ said Senator Christopher Dodd, a Connecticut Democrat and chairman of the Senate Banking Committee.
In testimony before the panel, Treasury Secretary Timothy Geithner defended the proposal as the nation’s best shot.
“It will be very hard, perhaps impossible, for any authority, any individual to anticipate and pre-empt all potential sources of future risk,’’ Geithner said.
Lawmakers mostly agreed that change was needed to streamline federal regulation and fill in oversight gaps believed to have contributed to the housing and credit crisis. Several Democrats also lauded the proposed creation of a new consumer-protection agency that would police the market for deceptive business practices in such financial products as credit cards and mortgages.
But members on both sides of the aisle questioned whether the administration was putting too much faith in the Federal Reserve.
Under Obama’s plan, the Fed would oversee institutions deemed so big or influential in the market that their failure could seriously damage the economy.
A council of federal regulators, including the Fed, would help monitor the market for risk. But the Fed would ultimately be accountable for ensuring companies don’t make overly risky bets.
Several lawmakers have suggested tasking the council of regulators with the job and criticized the Fed for its role in the recent crisis.
“The reality is they [the Fed] had the knowledge and authority to address the mortgage problem long before it became a crisis, and they didn’t act,’’ said Senator Robert Menendez, Democrat of New Jersey.
Other lawmakers questioned whether the Fed could become an effective super-regulator while retaining its role as the nation’s central bank and setting monetary policy.
Geithner said the Fed was the best option because it was the only institution with the capacity and expertise to monitor the “too big to fail’’ firms. Giving the power to the council of regulators could delay action in a crisis, he added.
“You cannot convene a committee to put out a fire,’’ he said.