Under questioning from the AP’s Jennifer Loven tonight, President Obama predicted “strong support from the American people and from Congress” for giving the Treasury Department and Federal Reserve sweeping new powers to take over and wind down insolvent financial institutions.
Obama pitched the change as necessary to avoid a regulatory vacuum in case another major financial firm implodes in the manner that AIG did.
“Understand that AIG is not a bank,” Obama said. “If it were a bank and effectively collapsed, the FDIC could step in as it does with a whole host of banks … and in a structured way, renegotiate contracts” with counter-parties and employees.
But the FDIC, which steps in to dispose of insolvent banks such as IndyMac, is a different political animal than the Treasury and Fed, both of which have fallen out of favor with Congress thanks to the bailout’s rocky path.
Senate Banking Committee Chairman Chris Dodd (D-CT) suggested today that future financial regulatory powers should be shared by the Fed, the FDIC, and the Office of the Comptroller of the Currency, marking a sea change in the Fed’s influence less than a month after Dodd’s House counterpart was openly pushing for the central bank to wield new power.
So it’s an open question whether Congress is ready to give that “strong support” for handing Treasury chief Tim Geithner and Fed Chairman Ben Bernanke the power to decide which non-bank financial institutions live or die. House Majority Leader Steny Hoyer (D-MD), in fact, was open about his skepticism today.
