Not so fast, senators tell Fed, SEC on bank pact
Written on June 29, 2008
As the Federal Reserve and securities regulators neared an agreement on investment banks, leaders of the U.S. Senate Banking Committee on Friday warned them not to get ahead of Congress with any Wall Street reforms.
Investment banks, which have traditionally enjoyed light regulation, are trying to boost capital in the wake of the subprime mortgage crisis that triggered billions of dollars in write-downs.
The Fed and the Securities and Exchange Commission have been developing a formal agreement to share information about investment banks amid an intensifying debate on what additional regulation may be needed.
Connecticut Democrat Christopher Dodd and Alabama Republican Richard Shelby sent a letter to the Fed, SEC and the Treasury Department about the Fed-SEC agreement. Dodd chairs the banking committee and Shelby is its top Republican member.
“We ask that no action regarding implementation of the (agreement) be taken before we can determine that it is in the best interests of our nation’s economy and the well-being of its citizens,” the letter said.
The lawmakers’ warning came as the Bush administration deals with the aftermath of momentous decisions in March that changed the Fed’s relationship to Wall Street, perhaps permanently.
In that month, the Fed helped engineer a takeover of Bear Stearns by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and guaranteed a $29 billion loan to facilitate the transaction out of concern that a Bear Stearns bankruptcy could trigger a financial panic.
It was the first time since the Great Depression of the 1930s that the Fed, which regulates commercial banks, stepped in to rescue a nondepository institution. The Fed also set up a temporary, special credit line to make emergency loans to major investment banks, which is due to expire in September.
Filed in: news.