–US Tsy’s Barr: Close To Getting Job Done On Financial Reg Reform
–Barr: Reform Will “Significantly” Change Fin System For The Better

By Brai Odion-Esene

WASHINGTON (MNI) – Officials within the Obama Administration
Wednesday underlined that the overhaul financial regulation will not
come at the expense of the Federal Reserve’s independence in monetary
policy, but warned the days when the central bank could bailout
individual struggling institutions are over.

In a briefing with reporters at the White House, Michael Barr,
assistant secretary of the Treasury for Financial Institutions and Diana
Farrell, deputy director of the National Economic Council described the
two bills about to be reconciled by Congress as “strong,” and contains
the core principles that the government wants in any final bill.

Asked for the administration’s position on auditing the Fed,
Farrell said the White House has been very clear on its committment to
transparency and openness but that cannot come at the expense of the
Fed’s monetary authority.

The administration has been careful to ensure that the Fed’s
independence is not compromised, she said. “History has shown us the
consequences of that kind of compromise.”

Farrell said the Sander’s amendment in the Senate’s financial
reform legislation — which mandates a one-time GAO audit of the Fed’s
emergency lending during the crisis — “is a good way of balancing the
demands for transparency and openness with the need for monetary
authority independence.”

The administration, however, is in favor of tighter controls when
to comes the Fed’s 13(3) emergency lending authority, preferring that a
struggling institution goes through resolution and be wound-down.

The 13(3) provision gives the Fed the ability to lend money to
firms under “unusual and exigent” situations, but Barr said the
legislation removes authority to provide assistance to a failing firm
outside of a resolution process.

“You can’t have a situation where the government steps in and
provides what is called open bank assistance to a failing firm,” he
said. The Fed going forward will only be able to offer broader support
to the whole system, and even then it will still be subject to
government oversight.

The failing firm will either have to go into bankruptcy, Barr said,
or under the resolution process and be “wiped out.”

As the House and Senate begin the conference process of reconciling
both versions of financial reform legislation, both Barr and Farrell
said the two bills are closely aligned to what Obama wants to achieve in
financial reform.

Farrell said she is confident that the differences between the
House and Senate bills can be resolved, and Barr added that the
administration will take every effort to strengthen the final
legislation even though there is plenty of “fight” left in the process.

“We are very close to getting the job done,” Barr said. The final
bill will “significantly change –for the better — our system of
financial regulations for generations to come.

There will be strong consumer financial protection they said,
higher capital requirements and greater transparency in all derivatives
transactions — with regulators having “robust” enforcement authority.

The Volcker rule — which bans proprietary trading by banks — must
be in the final legislation Barr said, as it addresses core concerns the
administration has with risky bank practices.

And with issues such as banks’ proprietary trading also having
important implications around the world, the government is
simultaneously pushing for progress internationally on financial reform.

“The process internationally I think has been positively influenced
by the reform effort domestically,” he said, particularly with regards
to derivatives regulation and capital requirements.

So while there will continue to be deliberations back and forth in
the coming months, Barr said, overall progress has been made.

** Market News International Washington Bureau: 202-371-2121 **

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