WASHINGTON — Fresh from victories that gave them control of the White House and stronger majorities in the House and Senate, Democratic lawmakers vowed Wednesday to stem the fallout from the financial crisis and take a cautious approach to regulatory restructuring.
In an interview Wednesday, House Financial Services Committee Chairman Barney Frank said he plans to resurrect a bill that would rein in subprime lending practices. The House passed that bill last year, but it stalled in the Senate. The Massachusetts Democrat said he was hopeful it would have a better chance now that his party has picked up at least five seats in the Senate.
"I'm hoping we can get the Senate moving," Rep. Frank said. "I wish we would have gotten a subprime bill through … which was held up in the Senate because Chris [Dodd] had such a narrow majority."
Whether Senate Banking Committee Chairman Chris Dodd will remain Rep. Frank's counterpart in the Senate is unclear. Now that Sen. Joe Biden has been elected vice president, Sen. Dodd has a chance to take over the Foreign Relations Committee. If he did, he would have to relinquish his leadership of the banking panel.
His office was coy in addressing the question but scheduled a press conference for today to discuss his priorities. A press release from the office was notable in that it referred to the Connecticut Democrat not only as the Banking Committee chairman, but also as a member of the Foreign Relations and Health and Education committees.
If Sen. Dodd surrendered the banking gavel, the next in line is Sen. Tim Johnson, D-S.D., but he has been sidelined for much of the past two years while recovering from a brain hemorrhage. After him would be Sen. Jack Reed from Rhode Island.
In an interview, Sen. Tom Carper, D-Del., a Senate Banking Committee member, said regardless of who is running the committee, he and two other Democrats — Sen. Johnson and Sen. Evan Bayh of Indiana — would continue to promote a centrist perspective on the panel.
Sen. Carper said he would encourage a lighter touch to legislation that would rein in credit card practices — a key industry for his state — and a bill promoted by President-elect Barack Obama to let judges rework mortgages in the bankruptcy process.
He said his focus would be on taking stock of recent interventions into the financial markets, eliminating plans that failed and finding new solutions where necessary; re-evaluating the regulatory system; and pressing for flood insurance reform.
"We need to do extensive oversight of all the steps that we've taken to try stabilize the banking system to try to return liquidity to financial markets and confidence to our markets," he said. "What is working and what is not?"
Both he and Sen. Johnson said the regulatory structure is due for more scrutiny. Sen. Johnson said in a press release Wednesday that the committee must "assess the effectiveness and relevance of each of the financial regulators" to the modern economy.
"We've learned that our current regulatory system is not flexible or adequate in our current economy," he said. "Many changes are going to take place, and this will take time."
Rep. Frank, too, appeared intent on taking a thoughtful approach to regulatory restructuring. He cast doubt on the idea that Congress would create a select committee to address the issue, and he said he planned to discuss the topic with Sen. Obama.
"There will be conversations with the new president," Rep. Frank said. "At this point nothing is being discussed."
In addition to tightening underwriting, he wants to impose tougher standards on the securitization model and he wants to increase rental housing. He also reiterated plans to create a systemic risk regulator for nonbanks.
The gains in the election mean "we will be able to go ahead with a set of regulations that will frankly put some restraints on risk-taking in the securitization process," Rep. Frank said. "I think that's the central point."
He also said any knee-jerk fears from bankers that Democrats would unleash overregulation were unwarranted.
"If they want more of what they've got, which is chaos and disaster, then they should have voted Republican," he quipped. "If they are saying that I and my colleagues are incapable of doing regulation sensibly, they have no basis for that kind of assumption."
Other Democrats on Rep. Frank's committee weighed in Wednesday with their own priorities.
Rep. Melissa Bean of Illinois echoed calls for subprime mortgage reform and said she wants to focus on the creation of a derivative clearing house and a federal insurance charter.
"I know President-elect Obama very much believes in accountability, and I think there will be a greater sense of urgency to build greater transparency and accountability," she said. "Obviously, regulatory reform remains at the top of the agenda … but I think you will see strong work together between the administration and Congress to make those changes."
Rep. Brad Miller said that President-elect Obama has promised to help Democrats enact mortgage bankruptcy reform, and that the Illinois Democrat will come into office with tremendous momentum and a Congress eager to work with him. He also said public awareness of the need for regulatory reform will help Congress and Sen. Obama.
"The environment will be very different with the public's understanding of the need for reform of how the industry is regulated, reform of consumer lending practices and a Democratic president who supports a reform agenda," he said. "There will be a tremendous change in our ability to get things through."
Rep. Gregory Meeks of New York said he wants to ensure that more inroads are made on loan modifications and other foreclosure prevention methods, such as those touted by Federal Deposit Insurance Corp. Chairman Sheila Bair. He also said the Treasury Department should begin buying illiquid assets and encourage healthy banks to buy weaker ones with recent capital injections. "The first thing we do have to do is to figure out how we restore the confidence in our markets."