Testifying this morning before the House Financial Services Committee, Treasury Secretary Geithner said the financial regulatory reform proposed by the Administration will include a new consumer financial protection agency that will protect consumers from unexpected risks and reduce the cost of compliance for lenders.
The new agency will consolidate fragmented consumer authorities into one agency, which will write rules, oversee compliance, and address violations by non-bank providers, as well as banking institutions. The Administration’s proposal also includes merging the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) into a new National Bank Supervisor.
“Our proposal will not create new bureaucracy for banks. It will take consumer authorities spread across many agencies and combine them in one place,” said Geithner in remarks released before the hearing.
Geithner also briefly touched on Fannie Mae and Freddie Mac, the government-sponsored enterprises that Treasury took over a year ago. Financial regulatory reform is expected to include a new structure for the two companies, which securitize over half of the nation’s mortgages.
“We cannot permit weak regulation of government-sponsored enterprises like Fannie Mae and Freddie Mac that accumulate trillions of dollars of exposure that is implicitly backed by the taxpayer,” he said.
Geithner also advocated stricter regulation of major financial firms to force them to pay an appropriate regulatory price for the risks that their failure or distress could impose on the broader financial system.
“It will offset the perceived government support enjoyed by these firms, which should substantially reduce any competitive advantage they have due to the market’s assumption that they would receive assistance in the event of failure. In sum, our proposals will provide positive incentives for these firms to shrink and to reduce their leverage, complexity, and interconnectedness. In addition, more conservative supervision and regulation of our major financial firms should reduce the probability that they will fail and therefore the likelihood that they will pose a threat to the financial system.” he said.
The committee will hold hearings next week on the proposed Consumer Financial Protection Agency.