WASHINGTON — Federal Deposit Insurance Corp. Chairman Sheila Bair urged lawmakers on Thursday to raise the debt ceiling to avoid a government debt disaster, warning that global investor confidence in the U.S. is at stake.
Testifying before a House Financial Services subcommittee, Bair said investor confidence in the U.S. treasury is vital to “domestic and global financial stability and cannot be taken for granted”.
“Any signal to the contrary risks permanently destroying the inviolable trust that investors the world over have placed in this nation for more than two centuries,” she said. “I urge Congress to reaffirm this trust by committing to a responsible increase in the debt ceiling.”
There is no greater threat to the economic and political future of the U.S. than a lack of ability to control federal debt, she said.
Implementing the Dodd-Frank financial reform act, which passed Congress last year, is vital to preventing another financial crisis, Bair said.
“The task of restoring the normal functioning of our financial markets and institutions remains incomplete,” she said. “The implementation of reforms under the Dodd-Frank Act will go a long way toward restoring long-term confidence and stability to our financial system.”
Pressing ahead with Dodd-Frank effectively will end bailouts and the “too big to fail” theory, Bair said.
House GOP members took issue with Bair’s blanket support of financial overhaul regulations.
“I’m still concerned Dodd-Frank hasn’t ended too big too fail,” said Rep. Ed Royce, Republican of California.
Under the law, the head of the planned Consumer Financial Protection Bureau will sit on the FDIC board. Republican Representative Jim Renacci of Ohio said he is worried about this “potential conflict of interest”.
Bair defended the requirement saying that it would help the CFPB head understand the concerns of the FDIC.
“It might help sensitize that person to some of the safety and soundness issues associated with deposit insurance,” she said.
Mortgage lending is still a major problem facing the economy, Bair said. Banks are still averse to risks on loans. Regulations are not the reason why not many loans are being given, she said.
“I think there are still some troubled assets,” she said.
Banks need to make loans in order to earn money so the cycle needs to get going again.
Democratic Congressman John Carney of Delaware said bankers in his district have told him regulators are bearing down on loans and making it difficult for banks.
And Republican Representative Sean Duffy of Wisconsin said he has heard concern from small community banks and credit unions in his district that are hurt by federal regulations. The federal laws make it more difficult for them to compete with longer banks or even stay in the market, he said.
“How can we still be safe and still have rules that allow local bankers, who didn’t have anything to do with the financial crisis, to do business?” Duffy said.
The FDIC is concerned about the problems smaller financial institutions face from regulators and aims make rules more effective and streamlined for community banks, Bair said.