Financial Reform at Forefront on Capitol Hill

At a congressional hearing on Tuesday, Rep. Barney Frank, chairman of the House Financial Services Committee, said he plans to begin drafting legislation to overhaul regulation of the nation's financial system by early May. As part of the reform movement, the House leader has already said that he plans to propose changes to mortgage regulation later this month.
Frank said it would be a ""lengthy process"" to ensure that future financial meltdowns like the current crisis and recession don't happen again.
According to a _""Reuters"":http://www.reuters.com_ report, however, economists and the larger financial community hold expectations that Treasury Secretary Timothy Geithner will reveal a plan within days that would set up a so-called systemic risk regulator to monitor and manage risk in the financial sector. Currently, no single agency has the responsibility of such oversight.
The _""Associated Press"":http://www.ap.org_ reported that lawmakers and witnesses at the Tuesday hearing questioned whether the Federal Reserve was the best organization for the job and debated whether more regulation was even needed.
Rep. Frank and Secretary Geithner are meeting behind closed doors on Wednesday to further discuss financial reform measures.
Steve Bartlett, president and CEO of the Financial Services Roundtable, testified on Tuesday that restructuring the regulatory system ""should be Congress' primary mission moving forward to resolve the crisis and prevent another crisis,"" _AP_ said.
And Tim Ryan, head of the Securities Industry and Financial Markets Association (SIFMA), urged lawmakers to ensure that any new federal regulation included financial institutions that are not already subject to the government's direct supervision, such as insurance companies and hedge funds.
Representatives from the hedge fund industry, the insurance community, and the nation's major financial institutions have already expressed their support for a dedicated regulator to monitor systemic risk in the financial markets in testimonies before a House subcommittee earlier this month.
p{=margin-bottom: 0in}. Representing the Independent Community Bankers of America, Rusty Cloutier, president and CEO of Louisiana's MidSouth Bank, told lawmakers on Capitol Hill Tuesday that excessive financial concentration was instrumental in creating the current financial crisis and should be considered in any new reform legislation. According to Cloutier, ""deteriorating major banks"" today control 60 to 64 percent of the nation's assets. ""The only way to maintain a vibrant banking system where small and large institutions are able to compete fairly, and where taxpayers are protected, is for Congress to immediately address that concentration with emphasis on breaking up those institutions that pose a risk to our entire economy,"" Cloutier said.
In an article for the _""Financial Times"":http://www.ft.com_ on Tuesday, former Treasury Secretary Henry Paulson also called for an overhaul of the financial regulatory system. Paulson said that the current financial crisis ""has made abundantly clear that our financial system would benefit from a regulator whose focus is on risks across the financial system.""
Paulson also acknowledged that this duty would need to cover a ""broader set of financial organizations, including hedge funds and systemically important payment systems."" He added that Congress must develop means to ""unwind"" failing non-bank institutions to avoid a repeat of the 2008 collapses of investment banks Bear Stearns and Lehman Brothers.
In a letter to congressional leaders, the current Treasury Secretary Geithner said the AIG bonuses making headlines this week ""dramatically underscores the need to adopt, as a critical part of financial regulatory reform, an expanded 'resolution authority' for the government to better deal"" with such situations. Geithner said this resolution authority should include a broad set of regulatory tools for the government to address the issue of companies that are 'too big to fail' -- financial institutions like AIG, he said, whose collapse would pose substantial risks to the overall financial system.
""Without this expanded authority,"" Geithner said, ""the government has been forced to take extreme measures to prevent the catastrophic collapse of AIG and allow the time necessary for its orderly wind down.""
Regarding the controversial AIG bonus payments, the _""New York Times"":http://www.nytimes.com_ reported on Wednesday that Edward Liddy, AIG's CEO, is expected to tell congressional leaders that he will ask his employees to give back half of their bonus money.