Dodd Calls for Regulatory Council to Prevent Another AIG
REFORM
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/24/09
WASHINGTON – As fury over American International Group bonus payments continued to boil around him, Sen. Chris Dodd, D-Conn., tried to push forward Tuesday on plans to overhaul the nation’s banking system, calling on lawmakers to consider a council of federal regulators that would oversee risk and end the concept of “too big to fail.”
Departing from his suggestion last week that the Federal Deposit Insurance Corp. should regulate systemic risk, Dodd said Tuesday that a council representing the Federal Reserve, the Treasury Department and the FDIC, among others, would provide the needed financial oversight without burdening one department with all of the responsibilities.
Sen. Susan Collins, R-Maine, introduced a bill last week that also proposed a federal regulatory council.
Dodd said placing a risk regulator within a single government agency might consolidate too much power in one place.
“I just don’t like the idea of the systemic risk regulator sort of talking to itself,” he said.
In a hearing at the Capitol, the Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, continued its discussion with bankers on how to regulate financial giants whose failure would threaten the stability of the entire financial system. The panel met with insurance industry leaders on similar topics last week.
Dodd said any new regulator should look to community banks when creating policy because many of them have been able to weather the economic crisis.
“We must recognize that not all banks are responsible for this crisis,” he said. “Small-bank lending might well help lead the way out of it.”
William Attridge, president of the Connecticut River Community Bank of Wethersfield, said it was important to have several agencies checking each other on financial regulation.
“Congress should not establish a single, monolithic regulator for the financial system,” he said.
But not every witness agreed that additional federal regulation was a good idea. Christopher Whalen, managing director of Los Angeles-based Institutional Risk Analytics, said regulation should include state as well as federal agencies.
There is no good way for the federal government to oversee all aspects of financial risk, Whalen said. “There is no God’s-eye view.”
Throughout the hearing, AIG never strayed far from the conversation.
Whalen said an important part of eliminating excessive risk is eliminating the credit default swaps that led to AIG’s near collapse. He took issue with the argument that AIG and other financial giants were too big to let them fail, saying that letting AIG fail would not have ended the world but it would have eliminated the credit default swaps.
“I pray to God we find the courage to put that company out of its misery and into bankruptcy. where it should have been six months ago,” Whalen said.
According to Dodd, part of what led to the near failure of AIG and the economic crisis in general was a perception that protecting the consumer stifled business. He said future regulation must reverse that trend.
“We cannot afford to consider a so-called systemic risk regulator without also considering how we can better protect the consumer,” Dodd said.
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