Treasury Secretary Timothy Geithner's framework for sweeping reforms to federal financial regulation drew skepticism Thursday from key lawmakers.
In a series of interviews with RTTNews in Washington, Democrats said they favored the concept of stronger federal regulations of sweeping financial institutions like AIG, but aren't willing to sign on to the proposal until the details are better fleshed out.
Rep. Paul Kanjorski, D-Penn., the head of the subcommittee overseeing the proposals, said his panel will be proceeding cautiously with legislation to grant Treasury the authority to take over and break up large financial institutions, similar to the power the Federal Deposit Insurance Corp. wields over banks.
There isn't any question that we need a mechanism for a resolution authority, he said. It will fill in the holes and gaps that presently exist.
He added, But we have to be very careful that we analyze the effects and applications of it and whether it does, in fact, fill all the holes.
Kanjorski said he was particularly concerned about the impacts on the insurance industry, as insurers are presently regulated on a state-by-state basis.
This outline of legislation tries to sidestep that problem, he said. I think they're going to have to come face to face with the national authority over insurance companies or a national charter, optional charter or maybe not optional charter.
He added, All these questions really fit together like blocks. As we build the new infrastructure we've got to make sure all the blocks are in the right place.
Rep. Ron Klein, D-Fla., another member of the committee, said he had concerns about how the process of dismantling large, failing institutions could be done fairly and without corruption.
I agree that we need to take steps to give authority, clear authority to the government to help create an orderly liquidation of some of these entities that are not under the jurisdiction of the FDIC, Klein said.
Klein also noted that the broader discussion of revamping the federal regulatory system would take time to get right, and said he supported giving Treasury the emergency authority to take over that role, but he wanted to see that there would be safeguards.
Make sure if we do this that there's competitive bidding, we don't have sole-sourcing of some friendly business that the financial arrangements with these businesses are fair and fully disclosed to the American public, he said.
He added, I just want to make sure we have broad experience, a lot of competitive bidding out there so we get organizations that can help the FDIC and Treasury get through this.
However a number of Republicans, including Rep. Spencer Bachus, R-Ala., said they had serious concerns about the proposal.
The glaring weakness to me was that it will allow unlimited amount of taxpayer dollars to go into intervening in a failing corporation, he said. To me that's a non-starter.
He added, What we want to do is have liquidate resolution with a minimum of taxpayer assistance.
Bachus added that even the largest companies should not be considered too big to fail and should run the same risks as all of the other companies competing in the economy.
Too big to fail implies too small to save. If 99 percent of the companies in America are 'too small to save' that's unfair, he said.
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