Magazine article American Banker

Ex-Fed Officials Back Paring Fed Role If It Gains Powers

Magazine article American Banker

Ex-Fed Officials Back Paring Fed Role If It Gains Powers

Article excerpt

Byline: Steven Sloan

WASHINGTON - Despite nearly universal opposition to the idea from the industry, two former top Federal Reserve officials are prepared to tell a House panel today that the central bank should lose consumer protection powers if it gains systemic risk authority.

"The skills and mindset required to operate as a consumer protection regulator is fundamentally different from those required by a systemic regulator," former Fed Gov. Frederic Mishkin wrote in testimony prepared for the House Financial Services Committee's subcommittee on domestic monetary policy.

"The orientation of an effective systemic regulator must be different from that of a rule-enforcing consumer protection [agency] or [the] conduct of [a] business regulator," Mishkin wrote. "A regulator charged with enforcing rules and managing systemic risk may end up devoting too much of its attention to rule enforcement."

Lawrence Meyer, another former Fed governor, said in prepared remarks that, "if something is to be given up, the most obvious choice is consumer protection and community affairs."

"These are not seen around the world as core responsibilities of central banks," he said.

These positions run counter to sentiment in the industry - and among the Fed and other regulators - that consumer protection should remain a function of the banking agencies. The Obama administration's regulatory reform proposal would give that power to a new, independent agency.

The White House's regulatory revamping would also empower the Fed to regulate systemic risks that could threaten the broader economy. …

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