WASHINGTON (Reuters) - The United States should lead the way on reforming financial regulation, which will make its banks more, not less, globally competitive, a Federal Reserve official said on Monday.
Kansas City Federal Reserve Bank President Thomas Hoenig stressed that changing the perception that large banks are “too big to fail” should be central to any reform.
The banking industry has argued that financial reform would raise the cost of doing business, giving overseas institutions an edge.
Hoenig said reform could actually make U.S. financial institutions stronger in the long run.
“I think it will. I consider that a competitive advantage,” Hoenig told the Reuters Global Financial Regulation Summit here. “Having other countries, who are just as concerned about this as we are, on board is important.”
Hoenig, who did not directly address the U.S. economy or monetary policy because of a looming Fed meeting, spoke as U.S. Senate Republicans mustered enough votes to block debate of a financial regulation reform bill.
The Kansas City Fed chief said he had concerns over certain aspects of the current Senate bill, particularly provisions that would alter the Fed’s regulatory role, though he said it was a “step in the right direction.”
Hoenig, who has been leading the charge against a measure in the bill that would strip the U.S. central bank of its power to regulate thousands of community and state-chartered banks, said he hoped his arguments were resonating with Congress.
He also joined his counterpart at the St. Louis Fed, James Bullard, in urging caution about housing an independent consumer financial protection agency within the Fed.
The Senate bill calls for an independent financial consumer protection bureau inside the Fed, aimed at stopping abusive home mortgage and credit card practices.
“It’s basically creating an agency and having the Fed fund it,” he said.
“If you have something inside and you don’t have an oversight role I think some day in the future there is going to be confusion about that. I think confusion creates uncertainty and uncertainty creates a bad outcome,” he said.
Hoenig also warned that making the president of the New York Fed a political appointee, as the Senate bill would, could hamper the Fed’s independence.
The New York Fed’s president is currently chosen by its board of directors subject to approval from the Fed’s Washington-based Board of Governors. The seven members of the Board of Governors are picked by the president of the United States.
“I would not be in favor of making the New York Fed president a political appointee. That’s just an eighth governor, except he’s in New York,” Hoenig said.
Additional reporting by Mark Felsenthal and Ann Saphir; editing by Carol Bishopric