Garrett Amendment Strikes New Fed Powers
Washington,
Nov 18, 2009 -
Rep. Scott Garrett (R-NJ) offered an amendment to strike the new powers given to the Federal Reserve within the Financial Stability Improvement Act of 2009, during the Financial Services Committee markup of the legislation.
Section 1104, subsection (5) is included below:
MITIGATION OF SYSTEMIC RISK.—If the Board determines, after notice and an opportunity for hearing, that the size of an identified financial holding company or the scope or nature of activities directly or indirectly conducted by an identified financial holding company poses a threat to the safety and soundness of such company or to the financial stability of the United States, the Board may require the identified financial holding company to sell or otherwise transfer assets or off-balance sheet items to unaffiliated firms, to terminate one or more activities, or to impose conditions on the manner in which the identified financial holding company conducts one or more activities.
Garrett’s prepared remarks for the introduction of his amendment are included below:
“In the last several months, it was my impression that there was a developing consensus that the Federal Reserve should be given less power, not more. But in reading over this discussion draft I am struck by how much power it is given.
“As discussed, although not singled out as a systemic uber-regulator in name, don’t be fooled. The Fed is given primary supervision over firms identified as too big to fail, as well as an array of other new powers.
“One of the new powers particularly caught my attention: Section 1104, subsection (5) on page 30 of the Committee print.
“In the name of mitigating systemic risk, the Fed is given unlimited authority to systematically dismantle a private company. This is a lot more sweeping than imposing tougher capital standards.
“I understand that Congressman Kanjorski is contemplating an amendment that I believe is similar to this section of the underlying bill. I understand the motivation behind such language, but if the majority truly believes they have done away with moral hazard due to the liquidation-only receivership of their proposed resolution authority, counterparties of large institutions should take this into account, and this section of the bill is unnecessary.
“Given the extraordinary government interventions into private firms we’ve already seen, with the trampling of the rule of law in order to benefit political favorites in the auto bankruptcies for instance, I am very uncomfortable with this sweeping, unchecked power – especially for an entity that failed to effectively regulate many of the large bank holding companies already under its purview.”
