FDIC: Help us help you with bad banks

Bank regulator says it needs power to make rules to enforce against banks that engage in fraud or deceptive acts.

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By David Goldman, CNNMoney.com staff writer

What should the government do about AIG bonuses?
  • Tax them
  • Make AIG pay them back
  • Nothing, a contract's a contract

NEW YORK (CNNMoney.com) -- The Federal Deposit Insurance Corp. wants Congress to broaden its power to protect consumers from banks that are engaged in criminal acts, according to testimony of an FDIC official Friday.

The FDIC wants the ability to write the laws it uses to regulate against banks involved in unfair or deceptive acts. Currently, the FDIC oversees 5,000 banks, but only the Federal Reserve, Office of Thrift Supervision and National Credit Union Administration can write the regulation it enforces.

"The FDIC's perspective -- as deposit insurer and as supervisor for the largest number of banks -- would provide valuable input and expertise to the rulemaking process," FDIC Vice Chairman Martin Gruenberg told the House Financial Services Committee.

Gruenberg also suggested the Office of the Comptroller of the Currency, which regulates 1,700 banks, have the power to write the rules they enforce.

The committee held a hearing on federal regulation of banks Friday. The committee has scheduled several hearings in March to work on legislation for financial reform.

Committee chairman Barney Frank, D-Mass., said that he is open to rewriting legislation to help bank regulators better enforce the rule of law.

"There is in America today a justifiable level of anger at the fact that the great majority of Americans are suffering economically because of the mistakes of a few number of people and a system that was inadequate for the task," said Frank at the hearing. "We are directing you to respond to us if you need more resources."

The FDIC also said it is "very concerned" about excessive bonuses for bank executives that have caused a recent public uproar, but the regulator said it is limited in its ability to legislate against them.

"Historically, we have found bringing excessive compensation claims to be difficult," said Gruenberg. "But we do have enforcement tools available to us in cases where such schemes affect the safety and soundness of institutions or they involve a breach of fiduciary duty."

Gruenberg also noted that the FDIC can also pursue cases in which bonuses and compensation are "manifestly unreasonable and disproportionate to any legitimate business purpose." He said the bank regulator expects to rule against banks in that situation.

Lawmakers and the public fumed this week after discovering that bailed out insurer American International Group (AIG, Fortune 500) gave out $165 million in bonuses to its financial products executives -- the same unit that wrote the insurance contracts on securities backed by bad loans that brought the company to its knees. To top of page

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