US House Republicans To Offer Plan On Financial Regulation
June 09 2009 - 3:14AM
Dow Jones News
U.S. House Republicans won't back an Obama Administration
proposal to give the government power to wind down non-bank
financial firms.
Republican lawmakers advocate beefing up bankruptcy laws so that
large, complex financial institutions can be resolved through that
system rather than by a federal regulator that might use discretion
to spread the costs of the failure, according to a summary of the
GOP position obtained by Dow Jones Newswires.
Investors and counterparties will be more wary about risks if
they don't believe the government will step in to prop up firms to
prevent a disorderly collapse, Republicans argue in the
document.
"Without this firm commitment to ending bailouts,
too-big-to-fail financial institutions and those who do business
with them have every incentive to pursue short-term gains, knowing
that the costs will ultimately be borne by others if things go
wrong," according to the document.
House Republicans, who are trumped by the Democratic majority in
the lower chamber, prepared the document ahead of congressional
hearings on financial regulatory reform set to begin Thursday.
Aside from the so-called resolution authority, Republicans are
planning to reject other ideas offered by Democrats.
They said they won't support establishing the Federal Reserve as
a systemic risk regulator, for example. Rather, they back the
creation of a board chaired by the Treasury secretary and made up
of bank regulators and outside experts to spot risks to the
financial system. The board would have no power to impose capital
standards or leverage ratios, but would periodically report its
recommendations on these matters to Congress and regulators.
The Republican plan would end the government's conservatorship
of Fannie Mae (FNM) and Freddie Mac (FRE) within two years. At that
point, the mortgage giants would be put into receivership or spun
out as purely private companies. Democrats haven't yet offered a
plan for Fannie and Freddie, but are unlikely to support an end to
all government involvement in the mortgage market.
The Republican plan supports one proposal thought to be backed
by the administration that would create a single regulator for the
banking system. The proposal, however, is unlikely to gain traction
because it has been rejected by House Financial Services Chairman
Barney Frank, D-Mass.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com