WASHINGTON — A Democratic plan to rein in the financial industry is flawed because it fails to tighten control over two large government-sponsored mortgage companies blamed for creating a demand for risky loans and inflating the housing bubble, a leading GOP senator on banking issues says.
The legislation "touches nearly every corner of the economy," Alabama Sen. Richard Shelby said in the GOP weekly radio and Internet address. "But these major contributors to the crisis are left unscathed," he added, singling out Fannie Mae and Freddie Mac.
"For years, Democrats blocked meaningful reform of Fannie and Freddie, and not much has changed," Shelby said.
The broadest changes in banking rules since the Great Depression are aimed to prevent a repeat of the near-meltdown that buckled Wall Street in 2008.
The Senate bill would create a council of regulators to oversee risks in the financial system and set up a mechanism to liquidate companies that are too large and interconnected to go through bankruptcy. It also would create an independent consumer protection bureau to police lending and bring previously unregulated complex securities under government oversight.
The Senate is debating the bill. The House passed similar legislation in December.
Obama administration officials have said that while the housing market remains unstable, it is too early to undertake wholesale changes in the housing finance system.
Fannie Mae and Freddie Mac buy mortgages from lenders and package them into bonds that are resold to global investors. When the housing bubble burst, the government had to step in and take them over.
Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, and fellow Republican Sens. John McCain of Arizona and Judd Gregg of New Hampshire have proposed requiring the government to give up control of Fannie and Freddie within two years and then take steps to get out of the business of mortgage finance. This plan would also repeal the companies' mandates to promote affordable housing.
A vote on the amendment could come as early as Tuesday.
Shelby also criticized the bill's consumer protection provisions, saying they overreach and could affect businesses that are not primarily financial companies. He also said the bill's call for an independent consumer protection bureau within the Federal Reserve would pose risks because it would separate consumer protections from regulators who look out for the safety and soundness of banks.
An alternative consumer provision offered by Republicans last week failed, with two Republicans joining all Democrats in voting in down.
On the Net:
GOP address: http://tinyurl.com/22rjeyf