Objections raised by the Federal Deposit Insurance Corp. to a recently introduced covered bond bill can be resolved, according to Treasury secretary Timothy Geithner.
The FDIC is concerned that a bill introduced by Reps. Scott Garrett, R-N.J., and Carolyn Maloney, D-N.Y. in the House would give covered bond investors superior rights over secured creditors and increase the cost of bank failures.
"FDIC has legitimate concerns," the secretary told the Senate Banking Committee Tuesday. For a covered bond market to work, "we would be putting the taxpayer in some sense behind private investors," said Geithner. "That has it own consequences. But that is something we can work through."
"I don't think this is rocket science," Geithner told Sen. Chuck Schumer, D-N.Y. Sen. Schumer said he might introduce the Garrett-Maloney bill in the Senate.
The bill (H.R. 940) would create a regulatory framework for federally insured banks to issue covered bonds that are collateralized by mortgages (residential and commercial) as well as other assets.
Geithner said the Obama administration would "support legislation that would help create better conditions for a covered bond market."
