Banking regulators attack reform plans

NEW YORK - The heads of the big United States banking regulators tore into President Barack Obama's reform plans, in defiance of Treasury Secretary Tim Geithner, architect of the overhaul, who said their bickering was endangering the whole reform process.

Sheila Bair, who runs Federal Deposit Insurance, which ensures the safety of customer deposits, said reshuffling the agencies was unnecessarily disruptive, potentially counter-productive, and irrelevant to tackling the failings that contributed to the credit crisis.

The Obama plan envisages centralising power to oversee the nation's banks in the hands of fewer regulatory bodies, and to hand power to oversee the biggest firms to the Federal Reserve, which would have additional powers to monitor whether bankers' behaviour was putting the financial system at risk.

But Geithner and other Obama lieutenants are stepping up the pressure for quick reforms, frustrated that the chance to act is slipping away and that Wall St could resume the reckless behaviour that inflated - and then burst - a giant credit bubble over the course of this decade.

The Administration's fury at the regulatory turf war boiled over at a meeting last week between Geithner, Bair, Federal Reserve chairman Ben Bernanke and other regulators.

Geithner's expletive-ridden rebukes that "enough is enough" were reported by the Wall Street Journal.

White House chief of staff Rahm Emanuel also weighed in yesterday. "The industry is already back to their pre-meltdown bonuses," he said.

"We need to make sure we don't slip back to risky behaviour where the institutions have all the upside and the taxpayers have all the downside, which is why we need regulatory reform."

Geithner's outburst seemed to have done little to dim the opposition of Bair and others, who trumpeted their independence of the Administration in front of the Senate Banking Committee yesterday.

John Dugan, comptroller of the currency, whose agency is slated to merge with the Office of Thrift Supervision, said the existing plan would give the Fed the right to override the views of other regulators when it came to supervising very large banks.

Bair, while supporting that merger, opposed giving too much power to the Fed, saying bankers wishing to push the boundaries of acceptable behaviour would find it harder if there were more than one regulator to deal with.

"There is a profound risk of regulatory capture if you collapse it all into one agency," she said. "We think having multiple voices can actually strengthen regulation."

She pointed to the Financial Services Authority in Britain as a single regulator which had conspicuously failed to have any effect in stopping the credit crisis. It would be best if legislation focused not on the structure of the regulatory agencies but on making sure there were no gaps in what got regulated.

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