Administration seeks expanding FDIC power.

[SirNitram]

Link

The Obama administration today detailed its proposed legislation granting the Treasury secretary unprecedented powers to order the seizure of financial companies whose failure would harm the broader economy.

Under current law, the government can only seize banks. The legislation would extend that authority to companies that own banks, and other financial businesses such as insurers, investment houses and hedge funds.

The Federal Reserve Board, along with any agency overseeing the troubled company, would recommend the need for a seizure. The Treasury secretary then would authorize the action in consultation with the president and the firm would be placed under the control of the Federal Deposit Insurance Corp.

Treasury Secretary Timothy F. Geithner made the case for the new authority during a speech in New York today at the Council on Foreign Relations.

"Destabilizing dangers can come from financial institutions besides banks, but our current regulatory system provides few ways to deal with these risks," Geithner said. "Our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage."

As he has in previous remarks, Geithner argued that the lack of such authority impeded the government's efforts to stabilize American International Group, and forced the chaotic bankruptcy filing of Lehman Brothers, a pair of catastrophes blamed by many market observes for exacerbating the financial crisis.

The administration has compared the proposed process to the existing system under which failed banks can be seized by banking regulators and placed under the FDIC's control.

But there are important differences. The decision to seize a bank is made by agencies that have considerable autonomy and are intentionally shielded from the political process. Some legislators already have raised concerns about providing seizure powers to the Treasury secretary, a member of the president's cabinet.

Also, the power to take over banks is part of a broader regulatory structure that seeks to limit the risks that banks take, and therefore the need for seizures. The administration has expressed a broad desire to increase regulation of firms that might be eligible for seizure under the proposed law, but it has yet to describe a plan.

Geithner reiterated today in New York that the administration recognized the need for increased oversight of firms it might be forced to seize.

The cost of bank failures is carried by the industry, which pays assessments to the FDIC. Treasury said it has not yet determined how to pay for seizures under the proposed system. Possibilities include dunning taxpayers or collecting fees from all institutions the government considers possible candidates for seizure.

FDIC Chairman Sheila C. Bair issued a statement that expressed support for an expansion of her agency's responsibilities.

"Due to the FDIC's extensive experience with resolving failed institutions and the cyclical nature of resolution work, it would make sense on many levels for the FDIC to be given this authority working in close cooperation with the Treasury and the Federal Reserve Board of Governors," Bair said.

So after all the sturm and drang and fuss, it turns out the 'VAST POWER IN ONE MAN' is limited to 'Uh, boss, two seperate boards say we need to do this. Can we sic the FDIC on them?'.

Also: Yes. Do this. Send these insolvent jerkasses into receivership.

[Alyeska]

Do it. And while we are at it, let the FDIC start collecting its insurance premiums again. This current mess is absurd on so many levels. At least with the FDIC having some power we might be able to solve some of the issues.

Something to consider. Because the FDIC currently doesn't have the power mentioned in the article it has been making deals and negotiating with healthy banks and banking corporations to get them to take over failing banks. For starters, the FDIC has come to my Corp asking us if we would help them take care of any banks that fail in our region. These proposals make the FDIC that much stronger.

[KrauserKrauser]

This is what I wanted to happen all along, kudos to sanity in government.

[Darth Wong]

This anticlimax is precisely why I tend to get my financial news about the US from the BBC. News reported too close to the source tends to be politically charged. But on the other side of the ocean, they seem to be able to report news about the US economy with a lot less hype.

[Crossroads Inc.]

This brings up a good point.. is there a way to sign up to a BBC cnews outlet that reports only on American news?

[Fingolfin_Noldor]

This brings up a good point.. is there a way to sign up to a BBC cnews outlet that reports only on American news?

There's an American section over at the BBC website?

[J]

It's a good start, though I'm not entirely comfortable with the Treasury Secretary's go/no go powers and the Federal Reserve Board's involvement in the process. Those two parties have been negligent and complicit in the mess to date and I could easily see them blocking seizures of institutions which should fail, such as Citigroup or JP Morgan. I'd rather have the sole authority to seize failing financials granted solely to the FDIC and other regulatory agencies, leaving Treasury with the task of funding the takeovers and nothing else.

All in all it's not bad, I hope they continue their work and keep building on it.

[aerius]

I'm going to disagree with everyone and side with this commentary. Why the hell should we give Treasury and the Federal Reserve new powers when they've yet to show any competance in using their existing powers? They let a bunch of fucking assclowns run bullshit derivatives crap with Enron style accounting for years, and so far only Madoff's headed to jail. Go investigate and prosecute the derivatives traders and internal "auditors", including the assholes at Citigroup who claimed they turned a profit using fraudulent accounting, and which pumped the share price upwards a few hundred percent. Until they put those chucklefucks in jail and demonstrate that they can actually do their jobs, regulate the industry, and enforce existing rules, I see no point in giving the Fed or Treasury any more tools to abuse. In fact we should be taking away their powers and giving them to the FDIC, OTS, and other agencies which are actually doing their jobs.