WASHINGTON The Federal Reserve Board would get the fifth seat on the Federal Deposit Insurance Corp.'s board under legislative language submitted Thursday to Capitol Hill by the Obama administration.
The move would hand the central bank even more power under the Treasury Department's regulatory restructuring plan, which has also included calls to give the Fed systemic risk oversight and enhanced supervision of bank holding companies.
It would also give it partial control over an agency with which it has historically feuded. In recent years, the FDIC and the Fed have clashed over Basel II capital standards and other key issues.
Industry representatives were quick to point out problems with the plan, saying the Fed should not be able to interfere with the workings of the FDIC.
"Having the Fed on the FDIC board is a bad, bad, bad idea," said Camden Fine, president of the Independent Community Bankers of America. "Giving the Fed a vote on the FDIC board would be like giving a loan customer a vote on the bank credit committee. It is blatant conflict of interest."
William Isaac, a former chairman of the FDIC, said Congress should never have put two other agencies, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, on the FDIC board to begin with.
"Having other agencies on the FDIC board can present big problems when there are vacancies among the appointed members as there were during the first couple of years of the Clinton administration," he said.
But Ricki Tigert Helfer, a former FDIC chairman who was a senior attorney at the Fed, did not see the harm in having the Fed on the FDIC board.
"I believe it actually could be very useful to have all the regulators represented on the FDIC board, particularly because the FDIC has been called upon to participate much more dramatically than ever before in addressing the problems of this financial crisis," she said.
Observers said the Fed was previously not added to the FDIC board because of fears there would be a conflict of interest given the central bank's monetary policy responsibilities. But Michael Barr, Treasury assistant secretary for financial institutions, said Thursday that was no longer a concern.
"We don't view the Federal Reserve's role in banking supervision as inconsistent with its role with monetary policy and so by extension we would not view it as conflict for them to be a member of the board of the FDIC," he said.
Treasury argued that it was simply trying to fill a seat left open by the proposed elimination of the OTS. Other existing regulators, like the Securities and Exchange Commission or the Federal Housing Finance Agency, are not relevant to the FDIC's mission. Treasury did not want to leave a four-member board (it includes the chairman of the FDIC and two outside directors) because it would be easily deadlocked.
But observers detected other motives.
"I would be surprised if it's solely about numbers of seats on the board," said David Nason, a managing director at Promontory Financial group and a former Treasury assistant secretary for financial institutions. "I would guess that the administration is trying to achieve more than that."
The proposal was one of several new details contained in the legislative language that detailed parts of the regulatory restructuring plan.
Treasury provided legislative language Wednesday on its plan to give the Fed systemic risk oversight, and detailed Thursday how it would merge the OTS and OCC.
The plan included details on ways to standardize banks' exam fees. Currently, banks can pay radically different rates depending on if they have a state or federal charter because state-chartered banks are not charged for their federal supervision by the Fed or FDIC.
Under the Obama plan, regulators would be required to ensure that all banks over $10 billion in assets will pay "bank examination fees regardless of charter based on their size, complexity and financial condition," according to a summary of the language.
The administration said that for banks below that level, national bank fees "cannot be higher than the average charged by states for banks of similar size."
The Treasury said such a move would effectively lower bank fees for many community banks and emphasized that there would be no basis to raise fees for state-chartered community banks.
While the Obama administration's plan would call for the elimination of the federal thrift charter, the legislative details finally spelled out the fate of state thrifts. Under the plan, state thrifts would continue to exist, as would all mutuals.
State thrifts would be regulated by the FDIC, while mutuals would be designated national mutuals and regulated by the enhanced OCC.
Thrift advocates had championed mutuals as a reason to keep the charter, but Diane Casey-Landry, chief operating officer and senior executive vice president for the American Bankers Association, said she was not satisfied with the concession.
"It's not sufficient by just moving mutuals over to the federal mutual charter you also have state chartered mutuals so it kind of suggests to me a lack of understanding of mutuality," she said. "What are they going to do with the mutual holding companies? It's obviously going to raise some questions in terms of the future of the mutual holding company."
Treasury officials said the proposal would effectively end charter shopping.
"They would be required to work through and be regulated by the other federal regulators to minimize charter shopping," said Barr.
