Watch Out Wall Street: Congress To The Rescue II

Not only does he have a rescue plan for distressed mortgages, Rep. Barney Frank (D-Mass.) also plans to push for a dramatic overhaul of financial services regulation, including tighter federal regulation of investment banks.

Frank, chairman of the House Financial Services Committee, outlined his ideas for a regulatory response to the current financial turmoil in a speech this morning before the Greater Boston Chamber of Commerce — a speech scheduled after the weekend bailout of Bear Stearns Cos. Frank’s full comments aren’t yet on the committee’s website but Frank’s office released an outline of the new proposal.

He called on Congress to consider creating a new regulator or expanding the powers of the Federal Reserve to act as a “Financial Services Risk Regulator” with the ability and power to evaluate players across the financial markets, regardless of a player’s specific corporate structure, and jump in to avert disaster when necessary.

Stiffer regulations would be the trade off for such “non-depository institutions” as investment banks (think Bear Stearns) being able to turn to the Fed as a lender of last resort.

Frank’s proposal includes subjecting all credit-creating institutions to the same “prudential supervision” that currently apply to banks. That means upping the amount of cash reserves they have to have on hand.

The Crypt hasn't gotten reaction from the industry yet, but as a general rule the business community doesn't like more regulation, so this could be a big fight. Of course, the current crisis means industry folks have something of a handicap.
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