WASHINGTON-House Financial Services Committee Chairman Barney Frank said last week he plans to split reform of financial services regulation into two parts, focusing first on handing systemic risk authority to the Federal Reserve Board.
The Massachusetts Democrat said he would return later in the year to a broader overhaul of the system, including the creation of a financial product safety commission and the consolidation of other banking regulators.
Rep. Frank said his immediate focus is on improving oversight of companies considered integral to the proper functioning of the nation's financial system.
"The biggest issue for the near term ... is dealing with systemic risk," he said. "There have been too few restraints on major financial institutions' incurring far more liability than they could handle, and the No. 1 job will be to empower some federal entity to be a systemic risk regulator."
During a press conference to outline his 2009 agenda, Rep. Frank said he would continue to work with the Obama administration to reduce foreclosures and thaw frozen credit markets, enact legislation that improves mortgage underwriting and reforms the securitization markets, and seek to dilute preemption rules that have blocked states from playing a stronger role in consumer protection.
Though debate has arisen on whether to give the Fed additional authority, Rep. Frank said "an emerging consensus" has appeared that the Fed "will be given power to do systemic risk regulation covering all forms of financial activity and they'll have some flexibility as to what the reach is."
Defining what constitutes systemic risk will probably be left to the Fed, he said.
"You can't define it too specifically legislatively because, if you do, then people will get around it," he said.
Rep. Frank said he expects a vote in the first half of 2009.
