Senate’s Warner Concerned Obama Agency May be ‘Gotcha’ Enforcer

By Alison Vekshin and Catherine Dodge

July 2 (Bloomberg) -- U.S. Senator Mark Warner expressed concern that President Barack Obama’s proposed Consumer Financial Protection Agency, centerpiece of a rules overhaul, is “divorced” from markets and would be a “gotcha” enforcer.

“Is this going to be some kind of poor cousin, located across town, that will always be struggling to have the resources, personnel and expertise?” Warner, a Democrat on the Senate Banking Committee, said yesterday in an interview with Bloomberg News.

Another concern is that the agency, “divorced from the reality of the market and the reality of the financial institution, becomes so focused on a gotcha mentality that it overdoes,” Warner said. He said he may be “convinced” to back the agency.

Warner endorsed Sonia Sotomayor, Obama’s nominee to the Supreme Court whose Senate confirmation hearing begins July 13. “She is extraordinarily qualified,” the Virginia senator said on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “I intend to vote for her unless I hear other things that would come out of the hearing.”

Warner, elected last year, hadn’t commented on the nomination of Sotomayor, 54, and said the U.S. Court of Appeals judge from New York will be confirmed. He also predicted the Senate will overhaul health care and pass a climate-change measure that would set limits to cut greenhouse gas emissions tied to global warming. “I would put the odds on both of those way north of 50-60 percent,” he said on the broadcast.

The Obama administration is seeking to give the consumer agency broad powers over companies that issue mortgages and credit cards in the revamp of financial rules after the worst crisis since the Great Depression. Warner conceded consumers have gotten “short shrift” from bank regulators and said “ideally” each regulator should have a consumer division.

Derivatives Regulation

Warner said any overhaul of regulation must include greater oversight of derivatives, the financial instruments derived from stocks, bonds, loans, currencies and commodities, including public trading on an exchange.

“You have that exchange setting requirements so that they guarantee, in effect, the counterparty risk,” Warner said.

Warner is “generally supportive” of the proposal to let the Federal Deposit Insurance Corp. disassemble bank-holding companies. Financial institutions, rather than taxpayers, should set aside a “contingent liability” on the balance sheet to cover a shutdown in the event of a failure, he said.

The Obama administration plan to designate large financial institutions as “too big to fail” as part of systemic-risk oversight is troubling, Warner said.

“By the virtue of making it public, do you end up creating moral hazard around that this is one of the ones we’re going to come in and bail?” the senator said.

Fed Role

Warner said Obama’s proposal to give the Fed a role in monitoring systemic risk might detract from its monetary policy mission. In addition, the experience of a Fed chairman, such as Ben S. Bernanke, differs from the background needed to police financial markets, he said.

“I have great respect for” Bernanke, who has a “good handle on the challenge,” Warner said, declining to endorse him for reappointment.

Obama’s plan to merge the Office of the Comptroller of the Currency and the Office of Thrift Supervision should be expanded to form a single regulator, Warner said. The Federal Reserve and the FDIC should cede their bank oversight role to such an “end-to-end” supervisor, he said.

On health care, Warner said he was open to tax increases to overhaul the system. Proposals such as one by Senate Finance Committee Chairman Max Baucus, a Montana Democrat, to tax some employer-provided health benefits for the first time should be “part of the mix,” he said.

“At the end of the day, you’ve got to pay for health care,” Warner said. “The more you can have a nexus, the more palatable it becomes.”

Health Competition

Warner, in the interview on “Political Capital,” said he is “intrigued” by the idea of a state or national health insurance cooperative to provide additional competition. “What we ought to be having is a competitive-based system.”

On climate change, Warner said there are ways the Senate can improve on the House measure passed last month. “I want to get to a bill that I can vote for,” he said.

Warner said any measure has to ensure that U.S. businesses stay competitive with foreign rivals and that certain regions of the country, such as the South and Midwest, aren’t “disproportionally hurt.”

Warner praised Obama for “heading in the right direction” on the economy. The “Achilles heel” is the deficit and a sense government is spending too much, he said.

“The jury is still out whether we’re going to be able to get more discipline around spending,” he said.

On Virginia politics, Warner, governor from 2002 to 2006, predicted Democratic state Senator Creigh Deeds will beat Republican Bob McDonnell, former state attorney general, in the November gubernatorial election.

“The Democratic candidate this year has worked across party lines,” Warner said in the television interview. “He’s been more of a moderate.”

To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net ; Catherine Dodge in Washington at Cdodge1@bloomberg.net .

Last Updated: July 2, 2009 00:01 EDT

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