The furor over Internal Revenue Service targeting of conservative groups stole the show during a hearing intended to discuss financial stability. Treasury Secretary Jacob "Jack" Lew repeatedly told members of the Senate Banking Committee that the actions described in a Treasury Department Inspector General's report on shenanigans in the Cincinnati IRS office were "outrageous" and "inexcusable." He said that his goal is to restore the public's confidence in the IRS and to ensure that it is free of political bias. Both Democrats and Republicans peppered Lew about the revelations, which have resulted in a number of congressional hearings and even a call for a special counsel.
The FSOC -- the what?
The Financial Stability Oversight Council was formed as a result of the landmark Dodd-Frank legislation arising from the financial crisis. The annual report it produces is signed by the major financial regulators including Lew, Federal Reserve Chairman Ben Bernanke, and the heads of the Securities and Exchange Commission and the Federal Deposit Insurance Corp., among many others. Lew had been scheduled to appear before the banking committee to address the annual report. But you might have had a hard time knowing that from the many questions posed about the IRS scandal.
What worries the FSOC?
As noted in Lew's written testimony, key recommendations coming from the group include:
- Steps to reduce "vulnerabilities in wholesale funding markets." The main concern is avoiding future runs on money market mutual funds.
- Housing finance reform. This is essentially implementing lessons learned from the bailouts of Fannie Mae and Freddie Mac.
- "Cybersecurity also continues to be a central concern, with financial institutions subject to frequent and varied cyberattacks."
- Interest rate risk. The report notes that record-low interest rates are leading to "yield-seeking behavior apparent in several markets." It cites loosening underwriting standards including with some real estate investment trusts.
Separate Senate hearing on IRS
In the legislative branch equivalent of a full-court press, the Senate Finance Committee was holding its own hearing on the IRS matter at the same time. It featured testimony from former IRS officials and the Treasury Inspector General for Tax Administration, who produced the report outlining the allegations. The House Ways and Means Committee held its own hearing last week and another House panel is slated to take up the matter Wednesday.
What about CFPB?
Even as the hearings were being held, the Consumer Federation of America issued a statement urging the Senate to hold a vote whether to confirm Richard Cordray as director of the Consumer Financial Protection Bureau. Like the FSOC, the powerful bureau was created in response to the financial crisis. The banking panel approved the nomination while split along party lines. The nonprofit Consumer Federation says that under Cordray, the CFPB has "moved decisively to end some of the worst abuses in the marketplace." Republicans are blocking the president's renomination of Cordray, urging creation of a commission, rather than the director position.