© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: June 16, 2010 12:32 am
The US Congress could on Wednesday drop a plan to let the White House and Senate decide the next president of the New York Federal Reserve, which central bank officials have warned amounts to “politicisation”.
Barney Frank, chairman of the House financial services committee, is proposing to scrap the plan and replace it with a ban on bank executives voting on Fed positions, which was designed to meet the same goal of limiting Wall Street’s influence on its regulator.
“I don’t want private people appointing other private people to vote on monetary policy,” he said.
Mr Frank is leading the conference committee that was charged with merging the Senate financial reform bill that passed last month with a House of Representatives version that passed last year and delivering final legislation for Barack Obama, US president, to sign into law this month.
People involved in the regulatory overhaul, including those sympathetic to the Fed, had believed that the change might be impossible amid a deep bipartisan desire to overhaul the central bank and distance it from Wall Street.
It could still be defeated during a vote on Wednesday but the attempt to change the system is a sign of Mr Frank responding to concerns from various Fed presidents and the Treasury, where Tim Geithner, Treasury secretary, is a former New York Fed president. The Fed’s supporters believed that the political appointment process would allow lawmakers to exert more control of the Fed, compromising its independence and leading to overly loose monetary policy.
During Tuesday’s conference session lawmakers moved to delay the implementation of a proposal by Al Franken, the Democratic senator from Minnesota, which would give a Securities and Exchange Commission panel the right to decide which rating agency covered which security.
The proposal would potentially break dominance of the market by Moody’s and Standard & Poor’s. Senators voted to put the issue out to a study, opening the possibility that it could be weakened or dropped.
Lawmakers also awarded a victory to depositors in IndyMac, the first big bank to fail in 2008 as the financial crisis took hold. House representatives voted retroactively to increase the federal deposit insurance cap from $100,000 to $250,000.
The limit had been raised to $250,000 to provide added confidence to depositors as the crisis worsened but not before IndyMac and several smaller banks failed. The change, widely opposed by Republicans, will charge $184m to the federal deposit insurance fund.
Most of the contentious issues, such as whether to force banks to spin off their swaps desks, have been left until the planned conclusion of the conference process next week. The House and Senate have to agree to all changes.
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.