WASHINGTON — The House of Representatives will move aggressively over the next two months to overhaul regulation of the financial services industry, taking aim at "too big to fail" firms, a top House Democrat said Wednesday.
"There will be death panels enacted by this Congress, but they will be for non-bank financial institutions," Rep. Barney Frank, D-Mass., said.
Frank, who chairs the House Financial Services Committee, said his panel will start marking up regulatory overhaul measures piece by piece over the coming weeks. By Christmas, he said, he hopes to no longer think about many of the issues currently under consideration.
The comments came at a hearing in which Treasury Secretary Timothy Geithner warned that U.S. policy makers cannot ignore the responsibility to revamp regulation of the financial system.
"We simply cannot walk away from the worst financial crisis since the Great Depression and not do everything in our power to reform the system," Geithner said in testimony for the hearing.
Geithner's appearance on Capitol Hill comes as lawmakers in the House and Senate begin in earnest drafting and marking up legislation. Frank said a key effort will be to prevent firms from growing too large and too systemically important. While he doesn't favor the government maintaining a specific list of firms considered too large, rules need to be in place to deal with resolving large financial firms and to discourage them from growing too large in the first place.
"They will be restrained. There will be restrictions on excessive leverage and restrictions on activities," Frank said, warning "there is no one magic bullet that does away with too big to fail."
Panel Republicans criticized the Obama administration's regulatory overhaul effort, using similar lines of attack to those employed in the ongoing debate over health care. Rep. Jeb Hensarling, R-Texas, said overhaul efforts will "prove to be terribly expensive and lead to rationing."
Republicans took specific aim at a proposal to create a Consumer Financial Protection Agency, citing criticisms from banking regulators at the Federal Deposit Insurance Corp., the Federal Reserve and other agencies.
"I get concerned that either these people are incompetent or maybe you aren't right," Rep. Randy Neugebauer, R-Texas, told Geithner.
Geithner cited the many mistakes and the lack of action by federal regulators that had the authority to act on consumer protections but didn't do so in the years leading up to the financial crisis.
"How did [the current system] work in practice? ... It did not do what it was designed to do," Geithner said.
Frank was blunter, chastising regulators for taking few steps to protect consumers and ordering them to submit their record of consumer efforts to the committee.
"I am struck by their newfound interest in consumer protection," Frank said.
Geithner argued that the new agency will benefit community banks and other financial firms not at the root of the risky lending that helped cause the crisis because it will prevent a race to the bottom on risky financial products.
"Without a strong framework of regulation, banks and other providers compete to take advantage of consumer confusion. ... This must end," Geithner said.
He also said he did not object to changes proposed by Frank on Tuesday that would revise sections of the Obama administration's consumer agency proposal.
Legislation that Frank will probably introduce in the coming days would eliminate a requirement that firms offer "plain vanilla" products to consumers, such as 30-year fixed-rate mortgages, as well as assurances that community banks will not face additional fees to cover the cost of the new agency.
In an acknowledgment that any delays in moving legislation could remove the impetus for enacting a regulatory overhaul, Geithner urged lawmakers to move quickly.
"As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency," Geithner added.