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UPDATE 2-Only Fed fit to do systemic exams - U.S. Treasury
(Adds details on additional regulatory proposals)
WASHINGTON, July 22 (Reuters) - Only the Federal Reserve is fit to perform exams of the largest, most systemically important financial institutions, a senior U.S. Treasury Department official said on Wednesday.
"With respect to the regulation of what we have called Tier 1 Financial Holding Companies, the Federal Reserve is the only regulatory body with the experience and with the deep and broad understanding of the capital markets," Deputy Treasury Secretary Neal Wolin told a banking trade group.
Increasing the Fed's powers as the "systemic risk regulator" is a key part of the Obama administration's sweeping plan to revamp the financial regulatory apparatus in response to the worst financial crisis since the Great Depression.
Treasury will send legislation outlining changes to federal financial institution charters to Congress on Wednesday, Wolin told a conference of the American Bankers Association. He declined to provide details, but the administration had earlier proposed eliminating charters for thrift institutions.
Next week, the Treasury will present its outline of rules to govern the trade of over-the-counter derivatives, he added.
Wolin also argued in favor of the Obama administration's plan to create a regulatory agency that will focus on protecting consumers from dangerous financial products.
Critics, including many in the banking sector, have said the proposed Consumer Financial Protection Agency would create costly and unneeded red tape restricting innovation.
Wolin said such an agency could have helped prevent the housing downturn by keeping a lid on risky subprime loans.
"It took the federal banking agencies until June 2007 to reach consensus on supervisory guidance to impose even general standards on the sale and underwriting of subprime mortgages," he said.
Wolin said he saw no problem with two distinct agencies weighing a company's consumer protection work and its general financial health. Separating these functions will not cause tensions among regulators, he said.
"From our perspective, we ought to have safety and soundness and we ought to have consumer protection. We oughtn't to have to choose between the two, and the two are very much capable of coexisting," he told the trade group, adding he was willing to work with the banking sector to fine-tune the legislation. (Reporting by Patrick Rucker and David Lawder; Editing by James Dalgleish)
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