The pushback against an omnipotent Federal Reserve keeps growing.
A top Congressional leader said Thursday that the Fed will not have the power to override other federal regulators when it comes to policing firms whose size or activities pose a threat to the entire financial system. This is a sharp break from the proposal first put forward by the Obama administration.
In the Obama proposal, which was released in the House last week in the form of a draft bill, the Federal Reserve would have the authority to ignore the recommendations by a firm's primary regulator (be it a bank or securities regulator) and simply impose its own standards on the firm. The Fed would also have the power to examine the firm, and force the firm to comply with those standards if necessary.
In essence, if the other regulators didn't play ball the Fed's way, the Fed could shove them aside.
Not only did the affected agencies complain, but members of Congress did, too.
Comptroller of the Currency John Dugan, who heads the agency overseeing national banks, expressed reservations about the proposal last week, saying that the approach "has the twin risks of producing less effective standards and undermining the effectiveness of the primary banking supervisors."
Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, told the Washington, D.C. newspaper The Hill that, "You really can't be a check on the Fed if the Fed has the power to enforce whatever the council decides."
So on Thursday, House Financial Services Committee Chairman Barney Frank (D-Mass.) said he was changing that provision.
"There will not be a Federal Reserve power to overrule other entities," he said.
It seems to be another sign that dissatisfaction with the Fed as a regulator is starting to impact how legislators and policymakers attempt to fix what is largely seen as a broken and fractured regulatory regime.
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more