Don’t rush on the banks

Don’t rush on the banks

Kansas City Star: When it comes to regulating banks, the U.S. government has spent years setting up a system that gets it right most of the time. Strict reporting is required of the banks. And regulators are prepared to swoop in when the public’s deposits are in jeopardy.

Now, the Obama administration wants Congress to move quickly on a sweeping expansion of federal regulation over the financial system. But while the struggling system obviously needs more oversight, a rush-job is not recommended.

This would mark the biggest expansion of financial regulatory authority since the Great Depression. The risk of unintended consequences is high enough without hasty action.

The administration’s plan would, for the first time, authorize needed federal regulation of financial derivatives, as well as hedge funds and large insurance companies such as American International Group.

Trolling for big fish

The proposal would create a regulator with the power to monitor risk-taking throughout the financial system. The agency would oversee “systemically important” financial companies, which would be required to increase capital or cut borrowing to protect against potential losses.

The government would have the power to seize any of these large firms if they veered into financial trouble. Currently the government has no authority to take over non-bank financial firms — an obvious deficiency in existing law.

The plan, however, poses many unanswered questions. Yet to be decided is who should have power to authorize seizures.

Rather than put this legislation on a fast track, Congress must patiently work through these issues. Lawmakers should take the time to do it right.