Today, the House Financial Services committee held a hearing to examine the regulation of systemic risk in the financial services industry. Committee chairman Barney Frank (D-MA) has been outspoken in his desire to see a systemic risk regulator — most likely the Federal Reserve — that would oversee all activity, across the spectrum of financial institutions, and flag behavior that is threatening to the entire system (like that undertaken by, oh, AIG).
Frank sat down with ThinkProgress today to explain his vision for the regulator and why the role should be filled by the Federal Reserve:
And what we mean by it is somebody who is able to say to any entity engaged in financial activity, ‘no you can’t do that in that degree. You are way over leveraged. You don’t have enough capital.’ […] Now I said, any entity. People said ‘well, are they going to regulate hedge funds or private equity?’ The answer is yes, all of the above. If you tell them to regulate this, that, and the other institution, I guarantee you that within a month there will be a new institution that’s outside the statute. So they will regulate activity.
The Treasury Department is expected to lay out its plan for a risk regulator soon:
The U.S. Treasury is expected to seek not only a stronger Federal Reserve, but tougher capital standards for banks and better derivative market clearing and settlement mechanisms. Proposals for better consumer protection and more aggressive oversight of hedge funds and credit rating agencies are anticipated, as are new ways to unwind big companies whose outright failure could do wide-scale economic damage.
According to Reuters, “many of Treasury’s initiatives closely resemble an agenda for regulatory reform” designed by Frank.