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Japan’s unemployment rate rose to a five-year high in May, while household spending unexpectedly advanced as the government distributed cash to help lift the economy out of its worst postwar recession.

The jobless rate rose to 5.2 percent from 5 percent in April, the statistics bureau said today in Tokyo, matching the median estimate of economists surveyed. Household spending rose 0.3 percent, the first gain in 15 months, a separate report showed. Economists expected outlays to fall 1.5 percent.

The world’s second-largest economy will probably expand for the first time in more than a year this quarter, boosted by Prime Minister Taro Aso’s stimulus measures. NEC Electronics Corp.’s President Junshi Yamaguchi said the “worst is over” and the Nikkei 225 Stock Average rose as much as 2.2 percent today, extending its gains since March 31 to 23 percent.

“We’re seeing the effects of the policy stimulus. Even though the unemployment rate is rising, production is recovering and so is consumer sentiment,” said Takuji Aida, senior Japan economist at UBS AG in Tokyo. Still, “the stimulus package will only have a large effect in the April-June quarter.”

The yen traded at 95.96 per dollar at 11:15 a.m. in Tokyo from 96.19 before the report was published. The Nikkei rose 1.9 percent to 9,968.04.

NEC’s Yamaguchi said in an interview yesterday that semiconductor orders for next quarter will jump “several percent” thanks to increased demand.

Cash Handouts

The government has given cash handouts of at least 12,000 yen ($125) to each resident, as well as tax breaks for fuel- efficient cars and incentives for buying eco-friendly televisions, refrigerators and air conditioners. The measures have helped lift consumer confidence to a 14-month high. Sales of electronics are up 18 percent since the government introduced incentives to buy energy-efficient goods, according to Tokyo- based researcher Gfk Marketing Service Japan Ltd.

The increased spending hasn’t been enough to revive business at all retailers. Takashimaya Co., Japan’s third- largest department-store chain, began its summer sales 10 days earlier than usual in a bid to spur demand. The Osaka-based company is reducing part-time workers, Hirofumi Hisasue, a senior operating officer, said after the company reported a third straight quarterly profit decline last week.

“The pressure to cut jobs is strong,” Jun Saito, chief economist at the Cabinet Office, said last week fast cash. Weak global demand means exports may not be strong enough to make up for the deteriorating job market at home, he said in an interview.

25-Year High

In the U.S., the unemployment rate rose to a 25-year high of 9.4 percent in May and is likely to climb to 10 percent by the end of the year, according to economists. The euro zone’s jobless rate reached 9.4 percent in May, the highest in a decade, economists predict a report will show this week.

Another key gauge of Japan’s labor market showed job prospects are the worst ever. The ratio of positions available to each applicant dropped to 0.44, the lowest since the survey began in 1963, the Labor Ministry said. Data yesterday showed retail sales dropped 2.8 percent in May from a year earlier, the ninth monthly decline.

“The job-to-applicant ratio was really eye catching — the data was horrible,” said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “The jump in household consumption is only a frontloading of spending.”

A separate report today showed that wages tumbled 2.9 percent, extending the longest losing streak in five years. Summer bonuses at Japan’s largest companies will slide a record 18.3 percent this year, according to a survey published last week by Keidanren, the country’s biggest business lobby.

Salary Cut

Panasonic Corp., the world’s largest maker of plasma televisions, last week said it will cut the annual salaries of its 10,000 managers this year.

“The economy remains at a very low level even though the worst is over,” said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo. “Companies are still seeking ways to cut costs.”

The Organization for Economic Cooperation and Development last week forecast Japan’s jobless rate will rise to an unprecedented 5.8 percent in 2010.

“The jobless rate will approach 6 percent,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management. “Given the deterioration in profits, more companies will feel that they have excess labor.”

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Japan’s industrial output rose for a third month in May as companies rebuilt inventories and the economy started to climb out of its deepest postwar recession.

Production increased 5.9 percent from a month earlier, the Trade Ministry said today in Tokyo, matching a gain in April that was the fastest since 1953. Economists surveyed by Bloomberg predicted a 7 percent increase, and factories were still producing 29.5 percent less than in May last year.

Manufacturers forecast output will advance this month and next, albeit at a slower pace, and economists expect the Bank of Japan’s Tankan survey this week to show sentiment among large manufacturers rebounded from a record low. The figures provide the latest evidence that the world recession is moderating as central banks flood their economies with cash and governments spend $2.2 trillion to prop up demand.

“Today’s data suggest companies are clearing inventories steadily and now the biggest focus is shifting to what happens after the inventory adjustment is completed,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “We have yet to see a pickup in final demand, which is crucial for Japan’s economy to sustain a recovery.”

A separate ministry report showed retail sales fell 2.8 percent in May from a year earlier, a ninth monthly decline, as a worsening job market forced households to cut back. Sales were unchanged from April.

Stocks Rise

The Nikkei 225 Stock Average added 0.4 percent at the lunch break in Tokyo, taking its gains to 41 percent from a 26- year low on March 10. Rengo Co., the nation’s biggest maker of cardboard boxes, surged 5.9 percent. The yen traded at 95.56 per dollar from 95.19 before the reports were published.

Production has risen for three months running, following a five-month losing streak that left about half of the country’s factory capacity sitting idle as of April. The largest output increase on record was 7.9 percent in March 1953, near the end of the Korean War.

Gains in production will slow to 3.1 percent in June and 0.9 percent next month, the ministry said, indicating that the inventory restocking may soon run its course. “Momentum is gradually fading,” said Muto at Sumitomo Mitsui.

The Organization for Economic Cooperation and Development raised its forecast for its 30 member nations for the first time in two years last week, and reports showed the U car insurance.S. economy is pulling out of its slump. Consumer spending advanced for the first time in three months in May and household sentiment rose to the highest level since February 2008.

Tankan Survey

An index of sentiment among large manufacturers will climb for the first time in a year to minus 43 from a record low of minus 58, economists predict the Tankan will show on July 1. A negative number means pessimists still outnumber optimists.

Japan’s economy is likely to grow at a 2.3 percent annual pace this quarter, according to economists surveyed by Bloomberg, following the previous period’s record 14.2 percent contraction.

China’s 4 trillion yuan ($586 billion) in government spending is feeding demand for Japan’s heavy equipment, autos and materials. China this year surpassed the U.S. as Japan’s biggest export customer.

“The impact of China’s infrastructure building has started to emerge,” Taizo Kayata, senior executive officer in charge of China operations at Komatsu Ltd., Japan’s biggest maker of construction equipment. Kayata said Chinese sales probably grew between 10 percent and 20 percent in June.

U.S., Europe

Still, rising unemployment in the U.S. and Europe may limit the rebound for Japan’s manufacturers. Nissan Motor Co. Chief Executive Officer Carlos Ghosn said last week that the U.S. market isn’t recovering. The company, which is forecasting its second annual loss, cut domestic production by 36 percent in May from a year earlier.

Job and wage cuts will probably curtail spending by Japanese consumers, which makes up more than half of the economy. Reports tomorrow are expected to show the unemployment rate rose to 5.2 percent in May and wages slid for a 12th month, extending their longest losing streak in five years, according to economists surveyed by Bloomberg.

Panasonic Corp., the world’s largest maker of plasma televisions, last week said it will reduce the annual salaries of its 10,000 managers this year.

“Consumer spending will remain weak for a while as long as the deterioration in the job market and wages continues,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “Japan’s recovery will be very weak.”

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Banks should revert to using equity to cushion against losses rather than the so-called hybrid debt they increasingly adopted before the credit crisis, the Bank of England said in its Financial Stability Report today.

The U.K.’s biggest lenders sold hybrid securities including subordinated notes as a cheaper way of meeting regulators’ capital requirements than issuing shares. Because the securities rank senior to equity in the event of a default, they’re less effective at buffeting against losses, and their value fell in the past two years as investors shunned hard-to-value assets.

“Subordinated debt should not feature as part of banks’ contingent capital plans,” the Bank of England said in the report. “Capital needs to be permanently available to absorb losses” and “the only instrument reliably offering these characteristics is common equity,” it said.

Regulators globally are considering ways banks can strengthen their ability to weather a future economic crisis, after financial institutions lost or wrote down almost $1.5 trillion since 2007, according to data compiled by Bloomberg. One of the proposals of authorities around the world is a return to using equity as capital, rather than forms of subordinated, or junior, debt.

U.K. banks need “higher-quality buffers consisting of common equity,” and the amount of capital a lender holds should reflect the impact its “distress or failure could have on the system as a whole,” according to the Bank of England report payday loan.

Britain’s central bank also said it supports the idea of lenders being required to set more capital aside when the economy is growing.

Buybacks and Exchanges

U.K. banks including Barclays Plc and Royal Bank of Scotland Group Plc have already started reorganizing their capital along the lines the Bank of England is suggesting, buying back or exchanging their subordinated debt to boost the levels of core Tier 1 capital, consisting mainly of equity and cash reserves. They do this by buying the notes back at a discount, booking a gain.

Barclays invited holders of its undated subordinated 7.7 percent bonds to swap the notes for new, more-senior securities on June 22, while RBS repurchased $12 million of notes due 2014 the next day, Bloomberg data show. Holders of Lloyds Banking Group’s subordinated bonds in pounds and euros agreed to swap about 66 percent of the securities for new senior debt in April.

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Japan’s consumer prices fell at a record pace in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession.

Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil continues to trade lower than last year’s record. Retailers including Aeon Co. are cutting prices to attract customers as falling wages and the worsening job outlook damp spending.

“Profits fall, then wages come down, then consumers stop shopping,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “And because people aren’t shopping, companies lower prices. That’s the process that we’re starting to see. It isn’t easy to break out of.”

The yield on Japan’s 20-year bonds fell half a basis point to 2.08 percent at the 11:05 a.m. break in Tokyo. The Nikkei 225 Stock Average rose 0.2 percent. The decline in prices matched the median estimate of economists surveyed by Bloomberg.

Worldwide inflation is easing as energy costs retreat and the worst global recession since the Great Depression forces companies to charge less. Consumer prices failed to rise in the euro area for the first time in at least a decade in May, and in the U.S. they fell 1.3 percent, the most since 1950.

Hard Sell

“With demand deteriorating, companies are finding it more difficult to sell goods and services and are turning to discounting,” said Azusa Kato, an economist at BNP Paribas in Tokyo.

Some 47 percent of 775 Japanese retailers surveyed by the Nikkei newspaper plan to lower prices in the year ending March 2010 to spur sales, up from 9 percent a year earlier. Aeon, Japan’s second-largest retailer, this week started a discount campaign for confectionary, drinks and mayonnaise.

Consumers, whose spending accounts for more than half of the economy, may delay purchases if they expect goods to get cheaper. That would erode profits and force companies to cut wages, which have already slid for 11 months. Japan only escaped from a decade of deflation in 2005.

Finance Minister Kaoru Yosano said an “extreme” slump in demand and production are causing the drop payday loans. “We continue to monitor developments in prices and need to carefully manage the economy to avoid a deflationary spiral,” he said.

Jun Saito, chief economist at the Cabinet Office, said in an interview that price declines “will exert a significant amount of downward pressure on the recovery.”

OECD’s Advice

The Organization for Economic Cooperation and Development this week urged the Bank of Japan to keep pumping cash into the economy “until underlying inflation is firmly positive.” Since it cut the key interest rate to 0.1 percent in December, the central bank has been buying corporate debt and increased government bond purchases from lenders to revive growth.

Central bank board member Hidetoshi Kamezaki said this month that receding expectations of price increases “could lead to a deflationary spiral, which is very dangerous.” Some 22 percent of consumers anticipate prices will be lower a year from now, the most since the government began asking the question in 2004.

“The Bank of Japan is clearly worried about the risk of deflation, not inflation, and an exit from its low-rate policy is still far away,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

Tokyo Prices

Even when excluding food and energy, consumer prices fell 0.5 percent in May, the fastest pace in 22 months, the statistics bureau said. Core prices in Tokyo, a harbinger of nationwide price trends, fell 0.7 percent in June from a year earlier, the biggest drop in six years.

“The economy’s deterioration will exacerbate downward pressure on prices,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Core price declines will probably exceed 2 percent in the July-September quarter.”

Core prices, the central bank’s key gauge of inflation, will slide 1.5 percent this fiscal year and 1 percent in the next, Governor Shirakawa and his board forecast in April.

Crude oil has lost about half of its value since peaking at $147.27 a barrel in July. Wheat, soybeans and corn costs have dropped after climbing to records last year.

Wholesale prices fell at the fastest pace in 22 years in May and corporate-service prices slid a record 3 percent.

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The seeds of a housing recovery have already been planted, according to a report released Monday. In fact, many of them were sown starting around 1979.

According to an annual state of the nation’s housing from Harvard University’s Joint Center for Housing Studies, once the U.S. emerges from recession, strong demographic trends will restore health to the housing market. The key is echo boomers, the 75 million Americans born between 1979 and 1995.

"There will be 5 million more echo boomers than there were boomers when they first started swelling housing markets," said Eric Belsky, executive director of the Joint Center.

As a result, household growth during the next 10 years should range between 12.5 million and 14.8 million, according to the report. All those new households mean demand for many new housing units.

"This is a powerful, powerful underpinning of future demand," said Belsky.

Headwinds

There are strong factors working against a quick recovery, however, and Belsky said it’s not clear whether recent increases in housing starts and existing home sales imply a rebound.

"The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery," he said. "For now, markets remain under considerable stress."

And the weak economy with massive job losses is putting additional downward pressure on markets.

In many of the hottest areas, distressed properties - foreclosures and short-sales-sales - form the bulk of the business. That’s good in that it clears up some inventories of vacant homes, but the steep discounts pull down home prices around the neighborhood.

That erodes equity for all homeowners and makes it more difficult for them to sell or access a home equity line of credit that could help them over financial rough spots. The home equity loan market, for example, is a mere shadow of what it was during the boom.

Low demand

As a result, the number of households spending more than half their income on housing is very high. It reached 18 million in 2007 and, given the loss of income and jobs during the current recession, that number may have risen affordable health insurance in tennessee.

Demand for homes is very limited right now. The weak economy has slowed it in several ways. Immigration has fallen, young people are less likely to move into their own places and more families are doubling up with relatives.

New household formation dipped to about 1 million last year, down from 1.4 million a year during the boom, according to the report.

Should the job losses turn around, housing markets could stabilize quickly. Inventories have already corrected to a significant amount, according to the report; the market has achieved a much better balance between supply and demand now.

"The inventory correction has been dramatic," said Belsky, "but it’s not seen because demand is so low."

There is, however, a lot of pent-up demand that could power markets back up. One problem, ironically, is affordability, despite prices having dipped more than 32% from their peak, according to the S&P/Case-Shiller Home Price index. Most lenders are only offering plain-vanilla loans with strict underwriting standards, so prices must fall even further for the properties to be affordable to many potential owners.

During the boom, many buyers were able to get exotic adjustable rate loans that were very inexpensive for the first few years, allowing families to get footholds into homeownership.

Interest-only, hybrid and option ARMs enabled many homebuyers to temporarily afford to buy more expensive homes. Those loans have vanished and lenders are much more careful about making sure buyers earn enough to keep up their mortgage payment, a brake on the overall market.

The recovery, when and if it comes, does not figure to remind anyone of the boom years. Markets will not heat up quickly, according to Gary Garczynski, a homebuilder and past president of the National Association of Homebuilders, who commented on the report.

"We will not see a V-shaped recovery," said Garczynski. "It will be an L-shaped one and it will go on a long number of years." 

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Europe’s manufacturing and service industries contracted at a slowest pace in nine months in June, adding to signs the recession is bottoming out.

A composite index of both industries for the 16 euro nations rose to 44.4, the highest since September, from 44 in May. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates a contraction. Economists forecast an increase to 44.9, according to the median of 12 estimates in a Bloomberg News survey.

The European economy is showing signs of stabilization after shrinking at the fastest pace in at least 15 years in the first quarter. German and French business confidence rose for a third month in June, reports showed this week. European Central Bank President Jean-Claude Trichet said this month the worst of the recession may be past after the ECB cut interest rates to a record low and pledged to buy covered bonds to fight the crisis.

Today’s report adds “to recent evidence that the worst may be behind and that the euro-zone economy is stabilizing,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “However, there is no reason for overhasty enthusiasm. A return to positive growth numbers might have to wait until 2010.”

Markit’s manufacturing index rose to 42.4 this month from 40.7 in May, according to today’s report. The services index fell to 44.5 from 44.8.

Financial Crisis

The worldwide financial crisis, which started with the collapse of the U.S. subprime-mortgage market in 2007, has led to more than $1.46 trillion of writedowns and credit losses at financial institutions, according to data compiled by Bloomberg, and sent the global economy into its first recession in more than six decades.

The euro-area economy may shrink about 4.6 percent this year and around 0.3 percent in 2010, the ECB forecasts. Trichet said on June 4 that the economy may contract “at much less negative rates” in the second half of the year. In the first quarter, gross domestic product dropped 2.5 percent.

ECB council member Ewald Nowotny said in a June 19 interview that the central bank won’t substantially alter its assessment of the economic outlook and is likely to keep interest rates steady for at least the rest of 2009. The ECB’s plan to purchase 60 billion euros ($83.2 billion) of covered bonds to spur lending will be carried out mainly by national central banks and maturities won’t exceed five years, Nowotny said in the interview in Vienna cash advance.

Global Slump

Companies across Europe have been forced to cut output and eliminate jobs to weather the global slump. Stuttgart, Germany- based Porsche SE, the maker of the 911 sports car, said on June 19 that nine-month revenue dropped 15 percent.

Europe’s economy lost a record 1.22 million jobs in the first quarter with payrolls declining 0.8 percent from the previous three months. The jobless rate, already at a decade- high 9.2 percent, may jump to 11.5 percent in 2010, the European Commission forecasts.

With increased unemployment offsetting the benefits of falling consumer prices, French household spending unexpectedly plunged 1.6 percent in May from a year earlier and was down 0.2 percent on the month, data today showed. Paris-based Air France- KLM Group may need to eliminate another 3,000 jobs, Chief Executive Officer Pierre-Henri Gourgeon said last week.

European stocks were lower. The Dow Jones Stoxx 600 Index was down 0.3 percent at 201.71 at 9:45 a.m. in London.

‘Eye of the Storm’

Deutsche Bank AG Chief Operating Officer Hermann-Josef Lamberti said on June 18 that the market is still in “the eye of the storm” as the credit crisis affects the real economy. “By no means is the worst over,” said Lamberti, who is also a member of the management board at Germany’s largest bank. “The financial crisis isn’t over.”

PSA Peugeot Citroen, Europe’s second-largest carmaker, said today that it may have an operating loss of as much as 2 billion euros this year, depending partly on the aid the French government is able to offer the auto industry. “A number of uncertainties remain,” the Paris-based company said.

European governments have boosted spending to bolster their economies, while the ECB this month kept its key rate at a record low of 1 percent. Gains in business and consumer confidence indicate that the measures may be starting to show results. Consumer confidence in Germany, the region’s largest economy, rose for a second month, data today showed.

“The euro-zone economic recovery is far from guaranteed and relapses remain a very serious danger,” said Howard Archer, chief European economist at IHS Global Insight in London. “It is imperative that the ECB does not rule out taking further efforts to boost economic activity.”

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U.K. home sellers lowered asking prices in June for the first time in five months as banks scaled back lending and required buyers to stump up bigger deposits, Rightmove Plc said.

The average cost of a home slipped 0.4 percent to 226,436 pounds ($372,000) from May, when it rose by 2.4 percent, the operator of the biggest U.K. residential property Web site said today. Separately, business service companies will lose more than 300,000 jobs within five years, the Centre for Economics and Business Research said in a report.

While the Bank of England says the housing market has shown signs of stabilizing, Governor Mervyn King cautioned last week that the squeeze on lending may slow the economy’s recovery from the worst recession in a generation. Unemployment, which rose to the highest since 1996 in the quarter through April, may also hamper a rebound in home values.

“We’re very much bumping along the bottom,” said Miles Shipside, commercial director at Rightmove, in an interview with Bloomberg Television. “Sellers are having to reduce prices to where they’re getting interest. With the pickup in sales activity, there’s a narrowing of the gap between asking prices and what’s actually being achieved.”

House prices fell 5.5 percent on the year, Rightmove said. Values dropped the most on the month in East Anglia, the North and the Southeast. Prices slipped 0.1 percent in London. They rose in the East Midlands, Wales and the Northwest.

Mortgage Costs

Mortgage lenders are raising the cost of fixed-rate loans and asking for bigger down payments. Nationwide Building Society and Lloyds Banking Group Plc this month both increased the cost of their fixed-rate home loans after a jump in U free business card template.K. swap rates, used by banks as a benchmark for mortgage costs.

The drop in housing prices follows reports last week showing retail sales unexpectedly fell and manufacturers’ export orders declined to the lowest level in a decade. King said that the economy’s recovery will probably be “protracted.”

Business services in Britain such as consulting, legal firms and accountants will lose 311,000 jobs between 2008 and 2013, the CEBR said today. Output in the industry will drop 5 percent this year, the report said.

Still, more than half of U.K. companies said the country has reached the bottom of the economic cycle and business confidence is at the highest since 2008, a survey by KPMG showed in a separate report today. A majority still said they face higher financing costs and tighter borrowing.

There are other signs of a pickup. Inflation slowed less than economists forecast in May, while surveys of manufacturing and services industries improved. Both Halifax and Nationwide Building Society reported that home values jumped last month.

U.K. homebuyers are clinching smaller discounts on property prices as the housing market stabilizes, the Royal Institution of Chartered Surveyors said June 15. Rightmove said today that asking prices are still 6 percent higher than in January.

“We’re through the worst, but it will take a long time to recover,” Shipside said.

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Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.

Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.

“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.

The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.

The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.

Bernanke Opposition

Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.

Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.

“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”

Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.

Congressional Criticism

Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.

“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said payday loans. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”

The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.

Lending Powers

The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.

Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.

“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”

In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.

‘Stress Tests’

Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.

Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.

The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’

Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”

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Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.

Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.

“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.

The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.

The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.

Bernanke Opposition

Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.

Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.

“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”

Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.

Congressional Criticism

Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.

“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said no fax cash advance. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”

The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.

Lending Powers

The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.

Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.

“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”

In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.

‘Stress Tests’

Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.

Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.

The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’

Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”

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CLAYTON — Nine months after a renovation costing $12.5 million and reopening, the Clayton on the Park luxury senior living high-rise confirmed Tuesday that it will suspend its operations.

A spokesman for Sunrise Senior Living, a partner in the project, said the facility will close Aug. 17. Letters were sent to residents on Monday, and the staff is meeting with each of them. Twenty of the 208 apartments now are leased and occupied, said Stacy Tew-Lavosz, executive director of Clayton on the Park.

On Tuesday, Sunrise, based in McLean, Va., released a statement saying it would do its best to make the transition "as easy and comfortable as possible for all of our residents." The company said it would work with its partner, Conrad Properties of Clayton, to determine the future of the building.

"At this time, we are not able to speculate on the future of the building or when, or if, operations will resume at the community," said Sara Krueger, spokesman for Sunrise.

Last year, Sunrise and Conrad completed transforming the then nine-year-old Clayton property from a luxury boutique hotel and apartments into an independent senior-living residence with top amenities. The building’s first three floors, including the area where the old Finale nightclub had been located, were gutted and refurbished into senior residences.

The remodeled high-rise boasted original art, a theater, wellness center, a spa, a rooftop veranda and top-flight dining. From the location at Bonhomme Avenue and Brentwood Boulevard, the building offers clear views of downtown Clayton’s business towers and Shaw Park’s public pool and gardens free credit report. Rents began at $2,800 a month for a studio up to $9,200 for the six three-bedroom, two-bathroom units.

Sunrise managed the senior living operation and has an ownership interest in the property. The company said it has no plans to close any of its 400 communities nationwide, including three others in the St. Louis area.

Despite the apparent failure of Clayton on the Park, the overall market for senior living is strong, said Maureen Smallwood, who specializes in marketing senior housing. Still, opening a luxury facility in a sour economy may have proven fatal, she added.

"For that high end a product, they just hit the market at the wrong time," Smallwood said Tuesday.

Smallwood serves on the Home Builders Association’s 50-Plus Housing Council, which was created because of the high demand for senior housing. Many senior independent living projects in the area at or over 90 percent occupancy, Smallwood said, adding that she expects demand to remain strong.

But the market for higher-end properties carries more risk, Smallwood noted, even for well-established senior-living companies like Sunrise. "In this climate, people are being more cautious," she said.

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