Garrett Mention - CQ: Republicans Ready Their Alternative Financial Industry Regulation Plan
Washington,
Jun 3 -
House Republicans will roll out their proposal to overhaul financial industry regulations as soon as next week, hoping to seize some initial attention in a process that will be dominated by Democrats in the chamber.
The GOP plan, which is still being finalized, would modify the bankruptcy code to deal with the failure of large financial institutions, reduce the Federal Reserve’s role in banking matters and begin the process of fully privatizing mortgage giants Fannie Mae and Freddie Mac.
In those areas, it veers sharply from a regulatory overhaul being finalized by the Obama administration that will serve as a template for congressional Democrats as they turn to crafting legislation on the issue.
“They want command and control. We want to incentivize and invigorate the American people,” said Tom Price, R-Ga., a member of the House Financial Services Committee involved in drafting the GOP plan.
Designed to avert a repeat of the recent financial industry meltdown, the regulatory overhaul is likely to command months of intense focus by lawmakers, lobbyists and interest groups. Committee Chairman Barney Frank, D-Mass., can likely move a bill without the support of Republicans, but he has indicated that GOP alternatives will have a place in the deliberations.
“We’re going to be rolling out a comprehensive [plan]. It’s not going to be a list of talking points,” said the panel’s top Republican, Spencer Bachus of Alabama, mindful of the criticism that greeted the House GOP when it rolled out only a vague alternative to President Obama’s budget plan earlier this year.
A primary component of the administration’s regulatory plan is the creation of an authority to wind down non-bank institutions that pose a systemic risk to the financial system, in hopes of avoiding the panic and ad-hoc fixes that marked the implosions of American International Group Inc. and other financial giants.
House Republicans, according to a draft of their plan, will propose an expedited form of bankruptcy as a way to handle major firms on the verge of failure. A new section would be added to the bankruptcy code with specific mechanics for handling such institutions.
“The wind-down authority cannot be a bailout authority. As long as we have that, we’ll never get back to any semblance of a free-market system again,” said Scott Garrett of New Jersey, the ranking GOP member of the Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
Less Power to the Fed
While Democrats have discussed expanding the role of the Federal Reserve in financial emergencies, with some preferring to make it a systemic-risk regulator, the GOP plan would scale back the Fed’s regulatory responsibilities, pushing the central bank to a singular focus on monetary policy.
The Republicans will call for creation of an independent board to supervise and monitor large and systemically important financial institutions. It would lack enforcement power but would issue reports to regulators and Congress on the health and sustainability of the institutions.
The GOP proposal would boost the funding and enforcement powers of existing regulators and overhaul the operation of credit-rating agencies.
The Republicans also plan to address an issue that administration officials have acknowledged will likely be left out of their final proposal — the future of Fannie Mae and Freddie Mac. The two entities were put into government conservatorship last fall and in recent months have become key assets in the Obama administration’s foreclosure prevention efforts. The GOP proposal would push the firms into total privatization within two years.
Consolidated Banking Regulator
The plan also would create a single banking regulator, merging the Office of Thrift Supervision and the Comptroller of the Currency and transferring the regulatory responsibilities of the Fed and the Federal Deposit Insurance Corporation into that entity. The White House floated a similar plan recently, but it was panned by Frank and may not be included in the administration’s final proposal.
The Republican proposal, spearheaded by senior GOP members of the Financial Services Committee, has not been finalized, but, Garrett said, it is “in its final stages.”
Once Frank releases the text of his bill, Bachus said, the two sides can “compare the two, then get about the business of making sure the events of last year” don’t happen again.
