Bill would broaden Treasury secretary’s power

By Brady Dennis and David Cho

 

The chairman of the Senate banking committee is aiming to release a new wide-ranging bill next week that would overhaul financial regulation, including a provision that could for the first time give the Treasury secretary a direct role in the oversight of individual financial companies, according to aides. Under a proposal from Sen. Christopher J. Dodd (D-Conn.), the Treasury secretary would head a council of regulators charged with monitoring systemic risk across the financial spectrum. It remains unresolved how much power that council would wield. But granting a Cabinet member a measure of regulatory authority would mark a significant departure from the current system, in which independent supervisors are granted autonomy and do not serve at the pleasure of the president. Dodd could build safeguards into the plan to protect the council from political influence, according to several sources who spoke on condition of anonymity because those details have not been worked out. But some experts were skeptical of the proposal, even if it were to include safeguards.  “I don’t see how you avoid fundamentally changing the role of the Treasury Department as a member of the executive Cabinet,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for industry clients. “One would hope the Treasury would exercise its powers in a virtuous way, but this is not what Treasury is nor what it should be.” If the Treasury secretary had a formal supervisory role, that official could use the position “to meet the political exigencies of the moment or for an upcoming election,” Petrou added. She pointed, for instance, to the recent debate over how high bank reserves should be kept. Regulators have been pushing banks to keep capital reserves high to guard against unexpected losses. The Obama administration wants supervisors to ease their requirements to allow banks to lend more to small businesses.

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