Lew says delays on rules may mean big bank riskJuly 18, 2013 @ 12:14 am
WASHINGTON (AP) - U.S. Treasury Secretary Jacob Lew says delays in writing rules to put the 2010 financial overhaul law into effect have raised the prospect that big banks could still threaten the financial system's stability.
Lew said that means policymakers may have to consider new approaches. His comments came Wednesday at a conference organized by the cable TV network CNBC.
If rules putting the law in place aren't sufficient by year's end to reduce the risk of big banks failing, Lew said "We're going to have to look at other options." Lew didn't specify what the options might be.
He said the Obama administration, like a group of senators who recently proposed legislation that would break up banks, wants to ensure that risky banks can't bring down the system. He didn't specifically endorse the legislation.
The legislation proposed by a bipartisan group of senators would force banks to split off their conventional lending and deposit-taking into separate companies from investment banking and other riskier activities.
Hundreds of U.S. banks received taxpayer bailouts during the financial crisis that struck in 2008 and triggered the worst economic downturn since the Great Depression of the 1930s. The list included the country's largest banks.
Next week marks the third anniversary of the overhaul law, enacted in response to the crisis, which is intended to prevent another meltdown and a federal bailout of banks.
Federal Reserve Chairman Ben Bernanke, testifying on Fed interest-rate policy to a House committee Wednesday, was asked about the regulation issue. "I think there's more work to be done before we feel comfortable" that the risk has been ended of big financial firms collapsing and endangering the system, he said.
Thanks to the overhaul rules that have been put in place, that possibility is less likely, but the threat "is not gone," Bernanke said.
Lew said that speeding up writing rules for the overhaul law has been a high priority for him since becoming Treasury secretary in February. He heads the Financial Stability Oversight Council, a group of top regulators charged with monitoring risks to the financial system.
Amid lobbying by the Wall Street banks and other business interests, regulators have weakened some of the rules as they have drafted them. To this point, fewer than half the rules to be written by the bank and securities-market regulators have been formally adopted.
"An awful lot of work has been done. An awful lot of work remains," Lew said. He noted that in recent weeks the bank regulators increased the capital all large banks must hold as a cushion against risk and moved toward making eight of the largest U.S. banks meet a stricter measure of financial health.
The "core elements" of the overhaul law will be largely in place by the end of the year, Lew said. He said it was especially important for regulators to finalize the so-called Volcker Rule, which would prohibit banks from trading for their own profit.
The latest version of the rule, named after former Federal Reserve Chairman Paul Volcker, includes an exemption for banks to make such trades when they are used to offset others risks taken. Adoption of the rule has been delayed largely because of the banks' objections.
(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)
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