WASHINGTON An amendment to the Wall Street reform bill in the Senate to give the federal government more power than states to regulate banks would seriously harm efforts to protect consumers, the White House and two state attorneys general said on Thursday.
Several Democratic senators are supporting the amendment -- also co-sponsored by 10 Republicans -- to give federal regulators more power to preempt state regulations, saying there should be one strong central regulator.
The White House said states had to help regulate the 115,000 financial service providers across the United States.
"It's not reasonable to expect that the federal agencies can do this alone," Diana Farrell, deputy director of the White House's National Economic Council, told reporters on a conference call.
The sprawling Wall Street reform bill working its way through Congress would be the biggest overhaul of the U.S. financial rulebook since the 1930s.
Final approval is expected as soon as next week but major disputes over amendments remain.
Most congressional Democrats, many state attorneys general and the Obama administration are pushing for the Senate bill, one of President Barack Obama's top policy priorities. It would have federal regulators set a minimum standard, and allow states to push for tougher rules as they feel appropriate.
"We feel strongly that the states should have the right to protect their citizens as they see fit and that national banks should have to follow the same rules that their state bank competitors do," Farrell said.
CARPER SAYS SUPPORTS STATES' RIGHTS
Tom Carper, one of the Democratic senators pushing for the amendment, said his bill would protect consumers.
Other Senate Democrats backing the amendment are Mark Warner, Tim Johnson and Evan Bayh.
"I support creating a new Consumer Protection Bureau to guard against unfair and deceptive lending practices," said Carper. "All my amendment says is that we should make that bureau do its job. This is the cop on the beat that we need."
"As a former governor, I believe strongly in state rights.
However, there are times when it's not always wise to have 50 different states weighing in on what's best," he said.
Iowa Attorney General Tom Miller and Connecticut Attorney General Richard Blumenthal, who joined the call, depicted the issue as a choice between supporting big Wall Street banks and promoting the public interest.
"The big banks drove the economy off the cliff, and we had to bail them out because they are special. But if there's one thing we should agree on, it's that they are not so special that they should get exempted from the state laws that all the small banks have to follow," said Elizabeth Warren, chairwoman of a congressional committee evaluating the bank bailouts.
"Study after study has shown that the mortgage crisis would have been less severe if we had let states take a more active role in consumer protection. It's no coincidence that the same financial services industry that has been exempt from state regulation was also the industry that brought down the economy with its recklessness," Warren told Reuters.
Senator Christopher Dodd, who is overseeing the financial-reform effort in the Senate, said Democrats might reach consensus on the issue. He said he did not know whether Carper's proposal would come up for a vote.
"I feel pretty strongly that you can't have a sweeping preemption but there's room I think for some discussion," he told reporters.
(Additional reporting by Kevin Drawbaugh, Karey Wutkowski and Andrew Sullivan; Editing by Kevin Drawbaugh and Andrew Hay)