WASHINGTON - Nominees to lead the Office of Federal Housing Enterprise Oversight and Federal Deposit Insurance Corp. appear headed for quick confirmation despite a Senate Democrat's concern that acting OFHEO Director James Lockhart is too close to President Bush.
Both Mr. Lockhart and Sheila Bair, who was nominated in May to be the FDIC's chairman, largely steered clear of controversial issues, including Wal-Mart Stores Inc.'s pending application to buy a Utah industrial loan company, at their nomination hearing Thursday before the Senate Banking Committee. Several members of the committee broadly endorsed them, and chairman Richard Shelby said the panel would vote on the nominees next week.
Only Sen. Paul Sarbanes, the committee's lead Democrat, challenged either nominee, saying Mr. Lockhart's closeness to the Bush administration worried him.
Sen. Sarbanes cited a New York Times story last year that said Mr. Lockhart, while deputy director of the Social Security Administration, had appeared at public events with Republican lawmakers promoting the administration's plans for personal retirement accounts. The Maryland Democrat also noted an American Banker article last month that said Mr. Lockhart was a personal friend of President Bush.
"I have this concern about the independence of the regulator," Sen. Sarbanes said.
Mr. Lockhart replied that he firmly believed in the independence of OFHEO, and said he had appeared with both Democrats and Republicans in his capacity at the Social Security Administration.
"I was not strongly supporting personal accounts," Mr. Lockhart said. "What I was really looking at is the future of the agency and the need to change the system for future generations."
In an interview after the hearing, Mr. Lockhart said part of his role at the Social Security Administration was "to educate the American people about the future of Social Security, and that's what we were doing."
Mr. Lockhart, who was appointed acting director in April, also touched on a continuing debate between House and Senate lawmakers over the powers of a proposed new regulator for Fannie Mae and Freddie Mac.
Sen. Shelby said that some critics have argued the new supervisor would not need additional authority over the companies' mortgage portfolios, noting that OFHEO took steps last week to rein in Fannie Mae's portfolio growth.
"We most definitely need legislation," Mr. Lockhart replied after Sen. Shelby asked him if he agreed. "I firmly believe that. We need the powers of a bank regulator. We need to be able to set capital limits and do that in a flexible manner. We need to consider not only market credit risk but operational and systemic risk."
Portfolio limits have been the main sticking point between House and Senate lawmakers. The House passed a bill last year to create a new regulator for the government-sponsored enterprises that would have control over the GSEs' portfolios but would not be required to reduce them. Sen. Shelby's bill would require the regulator to see that the portfolios be shrunk to the size needed for the GSEs to fulfill their mission.
Sen. Shelby said after the hearing that Mr. Lockhart's comments "unequivocally" endorsed his version of reform.
Sen. Shelby said he believed a GSE bill would be brought to the full Senate floor "before the summer is over." The Banking Committee passed the bill 11 to 9 last July along party lines, but it has been stalled since.
In response to a question from Sen. Mel Martinez, a former secretary of the Department of Housing and Urban Development, Mr. Lockhart said he also believes a new regulator should have more authority over new products from the GSEs.
"It should be a shared responsibility" with HUD, Mr. Lockhart said. "We have examiners in there every day and are looking at what they are doing. And we are discovering - not every day, hopefully, but occasionally - that they have not complied with the approval process. I think it is very important to have that responsibility."
Sen. Shelby also asked Ms. Bair how she would handle new flexibility granted to the FDIC by the deposit insurance reform law enacted in February. He noted that Congress intended for the FDIC to build up the deposit insurance fund in good times so that institutions would not face steep premiums in bad times.
"We're currently in a period of record bank profits and no bank failures," Sen. Shelby said.
In response, Ms. Bair said she planned to ensure the agency follows "legislative intent," and that she was "glad that we have the flexibility now that we didn't have before."
Implementing deposit insurance reform is "just one of many major policy issues confronting the FDIC," Ms. Bair said.
"ILCs, Basel II, regulatory burden, anti-money-laundering - the list goes on and on," she said. "There is no shortage of cutting-edge issues at the FDIC, and for many there are no easy answers."
Ms. Bair was not asked to comment on Wal-Mart's application to charter a Utah ILC, though lawmakers in the House continue to ratchet up the pressure for the FDIC to reject the Bentonville, Ark.-based retailer. Ninety-eight House members from both parties sent a letter Thursday to acting FDIC Chairman Marty Gruenberg asking the FDIC to impose a moratorium on granting deposit insurance to any ILC that would be owned by a commercial company.
The lawmakers, including Rep. Barney Frank, the House Financial Services Committee's lead Democrat, and Rep. Paul Gillmor, R-Ohio, said Congress is poised to weigh in on the subject and that "the FDIC should wait until Congress has acted before authorizing any additional commercially owned ILCs."
The Senate Banking Committee also heard testimony from Federal Reserve Board Governor Don Kohn, who has been nominated as vice chairman of the agency, and Kathy Casey, a committee staffer nominated as a commissioner of the Securities and Exchange Commission. Both are expected to be confirmed by the committee next week along with Mr. Lockhart and Ms. Bair.
