Magazine article American Banker

Volcker Vows to Fight Hard against Bills That Would Restrict Fed Powers: Stern Speech at Closed-Door Meeting of Banking Groups

Magazine article American Banker

Volcker Vows to Fight Hard against Bills That Would Restrict Fed Powers: Stern Speech at Closed-Door Meeting of Banking Groups

Article excerpt

WASHINGTON -- The Federal Reserve Board will try to scuttle any proposed banking legislation that includes regulatory or supervisory reforms of the agency, Fed Chairman Paul Volcker has warned.

Officials of six banking associations and about 60 bankers heard Mr. Volcker speak for about 10 minutes here at a dinner earlier this week. His remarks were made during an unusual two-day meeting closed to the press and called by the trade groups to hammer out common legislative ground and a "wish list" to present to Congress when it reconvenes on Jan. 23.

Mr. Volcker's brief message caught some trade association leaders by surprise. His comments were seen by many at the closed meeting as a warning to those banking associations that support Vice President George Bush's Task Group on Regulation of Services. The task force, which consists of 13 top federal banking and related agency leaders, favors by as much as 12 to 1 recommendations that would strip the Fed of much or all of its bank supervisory powers.

On Tuesday, the Fed sent to banking groups an 18-page white paper, dated Dec. 15, 1983, that details the agency's opposition to the Bush group's current leanings. The paper states that the nation's central bank "must remain substantively involved," that regulatory powers give "significant weight" to Fed views, and that discussion to curtail Fed powers "is out of focus."

A meeting of the Bush group is tentatively scheduled for Jan. 18 to discuss this thorny issue.

Some trade association executives in attendance viewed Mr. Volcker's words as a strategic use of leverage by the Fed before the banking industry's upcoming campaign with Congress to win new products and services.

"You support my keeping regulatory powers and I'll support your gaining new services -- that was the Fed's message," said one official.

The agency's concern, another Fed official stressed, is that once the Bush task force issues its final recommendations, "there's nothing to stop anyone in Congress from picking up the report and proposing legislation, or adding amendments" to such "new powers" bills as Sen. Jake Garn's or Sen. William Proxmire's "even before the administration has reviewed the report and proposed its own legislation."

If the Bush task force recommends stripping the Fed of supervisory powers, he added, "our only recourse is for the Fed to take its views independently to Congress."

Mr. Volcker "genuinely would like to see [bank] legislation go forward this year," said another senior Fed official who asked not to be identified. Trade association executives said Mr. Volcker remarked Monday that he might endorse -- and the banking industry should consider supporting -- a "core" bill with a few added powers such as securities, mutual fund, and municipal revenue underwriting. …

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