* Frank bill drops "plain vanilla" bank products provision
* Frank bill ensures coordinated exams, exempts many firms
* Geithner to firmly back consumer protection agency
* Geithner to say government won't name Tier One firms
By Kevin Drawbaugh
WASHINGTON, Sept 22 The U.S. Congress' chief
author of financial regulatory reform moved on Tuesday to kill
the most controversial part of an Obama administration proposal
for a new government watchdog for financial consumers.
Banks would not be required to offer so-called "plain
vanilla" versions of financial products, such as mortgages,
under draft legislative language drawn up by Democratic
Representative Barney Frank and obtained by Reuters.
The draft language comes in the face of opposition among
businesses and existing regulators to President Barack Obama's
proposed Consumer Financial Protection Agency (CFPA), part of
his sweeping program to tighten bank and market regulation.
In opting to delete the "plain vanilla" provision from his
version of the proposal, Frank, who chairs the House of
Representatives Financial Services Committee, has effectively
acknowledged that it was an over-reach by the administration.
The Frank bill must undergo committee review. But it will
likely be the vehicle Democrats use for moving the CFPA plan to
the full House for a vote, and possibly to the Senate.
In addition to dropping "plain vanilla," the bill
explicitly exempts many businesses from CFPA oversight,
including securities, commodities, investment and general
insurance products; accountants and tax preparers; real estate
brokers and agents; lawyers; auto dealers; communications
providers; and providers of retirement and pension plans.
Frank's draft emerged after he met on Tuesday with Senate
Banking Committee Chairman Christopher Dodd and U.S. Treasury
Secretary Timothy Geithner, who is expected to fight for the
CFPA in testimony before Frank's committee on Wednesday.
"Our proposal will not create new bureaucracy for banks,"
Geithner said in prepared remarks to be delivered to the panel
that were posted on the committee's website on Tuesday.
The CFPA is designed to be a central agency to handle
consumer protection duties now vested in several agencies,
including the Federal Reserve. It "will consolidate fragmented
consumer authorities into one agency ... which will write
rules, oversee compliance, and address violations by non-bank
providers, as well as banking institutions," Geithner said.
Many existing agencies, including the Fed, have been
roundly criticized in Congress for doing a poor job of
protecting financial consumers in the run-up to and during the
financial crisis that last year engulfed world economies.
Obama will attend a summit meeting this week of the Group
of 20 major nations where leaders are expected to grapple with
difficult financial regulatory reform issues.
Besides consumer protection, another issue is how to deal
with troubled large banks and companies like those given
massive taxpayer bailouts over the past year, such as American
International Group (AIG.N) and Citigroup (C.N).
In his prepared testimony, Geithner said that the United
States would not identify in advance financial firms it views
as systemically important, like those that were bailed out.
The administration plans to subject financial firms judged
to be so important that their failure would threaten the entire
system to a new and tougher regulatory regime. This would
impose higher capital requirements on them to offset the
perceived benefits of being deemed too-big-to-fail.
"Crucially under our proposals, there will be no fixed list
of Tier 1 FHCs (financial holding companies), and
identification of a firm as a Tier 1 FHC will not convey a
government subsidy," Geithner said.
DODD WARNS ON DEADLINE
Earlier on Tuesday, Senator Dodd said he wants his banking
committee to act on financial regulatory reforms before the end
of 2009, but warned that that deadline, self-imposed by the
Obama administration, could slip.
"We want to clearly get something done before the end of
the year in our committee, and possibly beyond that, but
obviously healthcare (reform) will determine to some extent how
much we can get done," he told reporters.
Speaking after his meeting in the Capitol with Frank and
Geithner, Dodd said: "Nothing has been written yet. There's
been no agreement specifically on any legislative language."
Dodd is deeply involved in the congressional debate over
healthcare, in addition to leading the banking committee.
Frank said the half-hour meeting was "not a wake" and that
the participants made "substantial progress."
Chances are still "very, very good" that Congress will have
a financial reform bill by the end of the year, Frank said.
He and Dodd spoke just minutes before Democratic Senator
Jack Reed, a banking committee member, introduced a bill to
regulate over-the-counter derivatives, a free-wheeling market
widely blamed for amplifying the financial crisis.
Like earlier proposals, Reed's legislation would force
"standardized" OTC derivatives to go through clearinghouses,
while placing other new limits on the market.
(Reporting by Rachelle Younglai, Karey Wutkowski, Alister Bull
and Kevin Drawbaugh; Editing by Gary Hill)