Congressional hearings on financial regulation on tap.

• Author: Orenstein, Edith
• Position: Washington insights

An overhaul of the U.S. regulatory framework--including the role of the U.S. Securities and Exchange Commission and the banking agencies--will be the focus of attention when the new Congress convenes in January.

Following passage of the Emergency Economic Stabilization Act (EESA) in October, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he believes "the economic difficulties we face are primarily the result of a lack of adequate regulation of key aspects of our financial system."

Following the November elections, Frank told The Wail Street Journal that a central point of the Democrats' plan would be the creation of a "systemic risk regulator," which could have unprecedented powers over a wide range of institutions. Among ideas will be those put forth in the U.S. Treasury Department's "blueprint" released in the spring, and others, based on lessons learned during the credit crisis.

Other matters on the Democratic agenda are potential "say on pay" measures. Sen. Charles Schumer (D-N.Y.) told The Journal that Democrats are "very mindful of the fact that too much regulation will snuff out the hallmark of our economy, which is entrepreneurship," and that legislators will strive to find balance.

Congressional Hearings

At a hearing on the "Future of Financial Services Regulation," convened by the House Financial Services Committee, in October:

* Hon. Steve Bartlett, president and CEO of the Financial Services Roundtable testified and called for further guidance from the SEC and Public Company Accounting Oversight Board on fair-value accounting in inactive markets.

* Edward Yingling, president and CEO of the American Bankers Association, testified: "Now that it has become apparent that accounting rules can have deep economic and systemic effects, Congress should consider whether that authority properly rests with the SEC."

* Alice Rivlin, senior fellow at the Brookings Institution testified: "Market capitalism is a dangerous tool; like a machine gun or chainsaw or nuclear reactor, it has to be inspected frequently to see that it is working properly and used with caution according to carefully thought-out rules."

Also in October, Rep. Spencer Bachus (R-Ala.), the ranking minority member on the House Financial Services Committee, wrote to Frank requesting that "the committee hold hearings to thoroughly review fair-value accounting standards, including the extent to which those standards may have contributed to...