The Obama administration is mulling a new agency to better protect consumers who buy financial products or take out mortgages from practices like those that led to the current financial crisis, U.S. Treasury Secretary Timothy Geithner said on Thursday.
Testifying before a congressional panel, Geithner said a broad set of regulatory reform proposals would be unveiled in a few weeks, and a new entity to protect consumers of financial products could be part of the administration's push.
We are examining the merits of setting up a new independent commission or agency to help provide stronger rules to protect consumers and better enforcement of those rules, he told a House of Representatives Appropriations subcommittee.
We are not at the point yet ... where we've made a judgment on what precise structure (or) form this should take, how broad its authority should be, how it relates to existing authorities that exist across the agencies now, he added.
Reckless lending by banks, including so-called liars' loans for under-qualified homebuyers that did not require proof of income or sometimes even employment, is widely blamed for fueling a housing boom whose collapse pushed the United States into a deep recession.
Geithner said government efforts to bolster the financial system were bringing immediate stability, and it was now time to turn attention to badly needed regulatory reforms to create a system that would be less vulnerable to meltdown.
This country has lived for some time with a very complicated, very segmented, archaic framework of oversight over our financial system, and that's one reason ... why this crisis was so severe, one reason why consumer protections were evaded so easily, Geithner said.
As part of its regulatory revamp, the Obama administration is expected to propose tighter oversight of hedge funds, streamlining bank regulation and shaking up executive pay standards. It also is expected to call for the U.S. Federal Reserve to be made a systemic risk regulator to monitor broad threats to the financial system.
Treasury's emerging proposals are already touching off a turf battle among regulators. Securities and Exchange Commission Chairman Mary Schapiro said on Wednesday she would question pretty profoundly any effort to move investor protection functions out of her agency.
TREASURY CAN'T HELP CALIFORNIA
Geithner faced a wide range of questions from lawmakers on Thursday, including whether the Treasury could tap its $700 billion financial bailout fund to help California, the country's largest economy, deal with a big budget shortfall.
Last week, California week urged Geithner to extend debt guarantees through the bank bailout fund to state and local governments to help them borrow short-term funds.
Geithner, however, told lawmakers that his hands were tied.
We do not believe that (the fund) as currently legislated provides a viable solution to this specific challenge, he said, adding that Treasury was not legally able to guarantee new debt issues.
He said the country would need to swiftly ratchet down the federal budget deficit, which has ballooned with efforts to combat the U.S. recession, once growth was restored.
We must get our fiscal house in order or risk having government borrowing crowd out productive private investment, Geithner said. He said the administration has to make sure its policies help retain confidence in the dollar's value.
My basic obligation is to make sure we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, Geithner said.
There were signs of problems brewing on other fronts.
One lawmaker told Geithner he was unlikely to be able to rally support for new funding for the International Monetary Fund as long as European countries lag in stimulating their economies as the Obama administration has done.
The United States has pledged $100 billion to help support a special IMF lending program, and $8 billion to expand the U.S. contribution to the fund, but Representative David Obey, chairman of the House Appropriations Committee, warned that was unlikely to gain traction.
I am very, very reluctant to support any additional funding for the IMF ... so long as the Europeans continue to be as modest as they are in terms of their actions on the stimulus front, Obey said.
For a text of Geithner's prepared testimony, see: http://www.treas.gov/press/releases/tg140.htm
(Additional reporting by Kevin Drawbaugh, Emily Kaiser and, Mark Felsenthal; Editing by Jan Paschal)