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Washington
Fed could perform consumer protection role Vice Chair says
WASHINGTON (7/10/09)--Federal Reserve Vice Chairman Donald Kohn on Thursday said that the Federal Reserve is well placed to perform the job of consumer protection, and also recommended that Congress should strengthen the Fed’s consumer protection authority. Speaking before a House subcommittee on domestic monetary policy and technology hearing on balancing the Fed’s independence with its role as a systemic risk regulator, Kohn said that limiting the Fed’s independence over monetary policy could “lead to higher long-term interest rates” and could raise the cost of borrowing by reducing the U.S. Treasury’s debt rating. Continuing to grant the Fed operational independence would also enable legislators “to look beyond the short term as they weigh the effects of their monetary policy actions on price stability and employment.” This sort of independence also “prevents governments from succumbing to the temptation to use the central bank to fund deficits,” Kohn added in a prepared statement. While he agreed that Congress should support the Fed’s independence, former Fed Governor Frederic Mishkin told the subcommittee that consumer protection is not in the “core mission” of the Fed, and allowing the Fed to take on this role could be harmful to its independence. According to Mishkin, the “skills and mindset” or a consumer protection regulator are “fundamentally different” from those required by a systemic regulator.” Both Mishkin and fellow former Fed official Lawrence Meyer agreed that the Fed’s consumer protection powers should be curtailed if it is given increased power as a regulator of systemic risk. The Obama Administration has called for the creation of an independent Consumer Financial Protection Agency (CFPA) that would have broad jurisdiction to ensure that consumers and investors are protected from financial abuses related to credit, savings and payment products. Rep. Barney Frank has also introduced a nearly identical concept, with some exceptions, into the House. (See related story: Frank's consumer protection plan has CRA difference News Now July 9.)


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