Countering Adminstration Move, Board Member Proposes Expanding Fed Power
Jan. 05, 1994
WASHINGTON (AP) _ A Federal Reserve Board member on Tuesday countered a Clinton administration plan to reduce the Fed's power, proposing instead to expand supervision of the nation's banks.
John P. LaWare, one of seven members of the Federal Reserve Board, acknowledged the administration was correct in seeking to simplify the complex bureaucracy that regulates commercial banks.
But in a signed article published by American Banker, a trade newspaper, LaWare called the administration proposal for a single administrator ''a flawed solution.''
LaWare was responding to a proposal released Nov. 23 by Treasury Secretary Lloyd Bentsen which would replace the present bureaucracy with a new independent federal banking commission.
The new commission would replace two Treasury Department agencies, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
It also would inherit much of the regulatory responsibilities of the Federal Reserve and the Federal Deposit Insurance Corp.
The Fed would retain its monetary powers, which includes setting short-term interest rates, and the FDIC would continue to insure deposits. However, the Fed and FDIC would lose their role as primary federal regulators of state- chartered banks.
But LaWare said a more modest reorganization would reduce the chances of making mistakes. He proposed that federal regulatory duties be split between the new agency proposed by Bentsen and the Fed.
The new agency, under his plan, would regulate federally chartered banks and savings and loans while the Federal Reserve would oversee all state- chartered banks and S&L's.
The Fed currently oversees about a thousand of the larger state-chartered banks. LaWare's plan would give it additional authority over the roughly 7,000 state-chartered banks now regulated by the FDIC.
LaWare said that his plan would maintain what he called a ''healthy process of dynamic tension in bank rule-making'' and avoid a single regulator which he said could become ''a monolithic monopoly regulator.''
Responding to his article, Treasury Undersecretary Frank Newman said LaWare's plan ''really isn't reinventing government ... in a sense it's just tinkering with it.''
Newman said that the LaWare proposal, if enacted, would confuse Congress, which would not know where to turn on banking questions. It also would confuse consumers who would not know where to sent their complaints, he said.
''It's strange in many ways, really puzzling,'' he said.
Newman said the Fed would have ample input into the regulatory process, all that it needs to continue formulating monetary policy. He said the Fed would have one seat on the new five-member commission and its examiners would be permitted to participate in the auditing of the nation's largest banks, side- by-side with the examiners employed by the new commission.
Any changes in the regulatory system would have to be approved by Congress, which is expected to examine the administration's proposal later this year.