Wednesday, May 13, 2009

F.D.I.C. currently has the power to seize depository banks, but does not have similar authority for non-banks, including bank holding companies


The Federal Deposit Insurance Corporation is talking with lawmakers about speedy legislation giving it power to wind down troubled bank holding companies, but not a broader range of financial firms, Reuters reported.

The Federal Reserve and U.S. Treasury Department have some disagreement with the F.D.I.C. about exactly what new powers the agency should gain, Reuters said, citing a source speaking anonymously because the meetings have been private.

The F.D.I.C. has been meeting in recent days with lawmakers’ staff, at the request of Congress, about so-called “resolution authority.”

“I think just giving us authority over bank holding companies would be easier… than tackling the larger non-bank systemic institutions,” FDIC Chairman Sheila Bair said after speaking to a National Association of Realtors’ meeting in Washington.

Of her agency’s talks with lawmakers she said: “It’s their call. They seem interested and we’re responding to their questions.”

The F.D.I.C. currently has the power to seize depository banks, but does not have similar authority for non-banks, including bank holding companies such as Citigroup and GMAC, which have both received billions of dollars in government aid.

Treasury Secretary Geithner told Reuters on Friday the government would likely have to provide “substantial” additional capital to GMAC.

The Treasury in March drafted a legislative proposal that names the F.D.I.C. as the resolution authority for a broad range of financial firms, but some members of the administration and bank industry groups have opposed such a plan, saying the F.D.I.C. is not properly equipped for such a large task.

The White House is expected in the next couple weeks to give Congress a plan for comprehensive financial regulatory reform. That proposal is likely to call for the Fed to play a central role in regulating systemic risk in the economy, sources said last week.

The F.D.I.C. is seeking quick passage of a separate piece of legislation for resolution authority, as the broad reform legislation will likely not get passed until close to the end of the year, Reuters said, citing the source.

The more narrow definition of resolution authority would also likely increase the chances the legislation could get passed quickly, as it would calm some concerns the Reuters said, citing the source does not have enough experience to handle complicated companies such as insurer American International Group.

But some lawmakers and administration officials want the resolution authority provision as part of the larger reform legislative package because they believe the systemic risk regulator proposal should dovetail with the authority to wind down large financial firms.

Ms. Bair told a Senate Banking Committee hearing last week that the ability to resolve bank holding companies would give the Reuters said, citing the source “a vital tool.”

She also said the lack of that tool has driven the administration’s policy decisions when dealing with large troubled financial firms.

Another source familiar with the F.D.I.C.’s plans told Reuters on Tuesday that the agency was considering seeking to create a new fund to help deal with any resolution of systemically important financial institutions. ( NB DON )

The source, who asked to remain anonymous because the fund is in the planning stages, told the news service that institutions with over $100 billion in assets could be required to pay into the fund on a regular basis.

The administration has shifted its focus in recent days to financial regulation reform, after the government released last week the results of stress tests on the 19 largest U.S. banks.

The government is driving to tighten regulation of banks and markets to prevent another financial crisis like the one that is currently ravaging economies worldwide.

National Economic Council Director Lawrence Summers, a senior adviser to President Barack Obama, is leading the effort on regulatory restructuring.

The administration hopes the House Financial Services Committee can approve the broad legislative package by July 4, with the goal of final passage by the end of the year."

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