Setting up a separate U.S. consumer financial watchdog will not only improve regulation of banks but also be more efficient for taxpayers, a senior U.S. Treasury Department official said.
Assistant Treasury Secretary Michael Barr, in remarks prepared for delivery on Tuesday to the Credit Union National Association, said banks would benefit from having consumer protection responsibilities handled by an agency separate from those that handle banking regulation.
"Dedicating consumer markets regulation to a fully accountable agency will give banks and credit unions a more predictable regulatory environment," he said. "Institutions will have more certainty, which will make it easier to build a sustainable business."
Excerpts from Barr's remarks to the credit union group were made available under embargo on Monday night.
His comments come as the Treasury tries to urge Senate lawmakers to look for common ground on tightening financial regulation in the wake of the crisis that helped drive the United States economy into recession in late 2007.
One obstacle to an agreement is the Obama administration's proposal for a Consumer Financial Protection Agency, envisioned as a powerful, independent agency that could shield consumers from predatory mortgages and abusive credit cards.
Republicans dispute the need for such a new agency, as do some participants in the U.S. financial industry for fear that it might threaten profits.
Barr said that existing practices, in which banking agencies also handle consumer protection, leads to overspending to ensure that banks and credit unions follow the rules but lets non-bank financial firms off the hook.
"The federal government spends at least 15 times more on consumer compliance and enforcement for banks and credit unions than for nonbanks, even though there are at least five times as many nonbanks as there are banks and credit unions," he said. "Separating consumer market oversight from bank supervision will go a long way toward correcting this misallocation of federal resources."
Barr said it might also help correct situations in which regulators, reluctant to take actions that might damage bank profits, delay steps against questionable consumer practices until public outrage forces their hand.
"Delays in addressing failures of consumer markets is deeply damaging to banks and credit unions, not just consumers," Barr said. "Separating consumer market and bank prudential functions would help resolve these structural problems and, ultimately, strengthen safety and soundness."
In pressing their case for a separate consumer watchdog agency, Democrats are aiming to undermine Republican opposition by pointing to similar proposals made by the George W. Bush administration.
A March 2008 proposal, for example, envisaged three separate agencies to look after market stability, prudential regulation and consumer protection.
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