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Only the Federal Reserve is fit to perform exams of the largest, most systemically important financial institutions, a senior U.S. Treasury Department official said Wednesday.
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"With respect to the regulation of what we have called Tier 1 Financial Holding Companies, the Federal Reserve is the only regulatory body with the experience and with the deep and broad understanding of the capital markets," said Deputy Treasury Secretary Neal Wolin.
Next week, the Treasury will present its outline of rules to govern the trade of over-the-counter derivatives, Wolin told a conference of the American Bankers Association.
He also said that Treasury was determined to see the creation of a new regulator that will focus on protecting consumers from dangerous financial products.
Critics have said that the proposed Consumer Financial Protection Agency would create costly and unneeded red tape restricting innovation in the financial sector.
Wolin said that such an agency could have helped prevent the current housing downturn by keeping a lid on risky subprime loans.
"It took the federal banking agencies until June 2007 to reach consensus on supervisory guidance to impose even general standards on the sale and underwriting of subprime mortgages," he said.
Wolin also said that he saw no problem with two distinct agencies weighing a company's consumer protection work and its general financial health.
"Separating consumer protection examinations from safety and soundness examinations does not cause problems," he told the trade group.
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