Congressman Frank Calls for Significant Changes in Financial Services Regulation

Following last week’s announcement of comprehensive legislation to address the nation’s housing crisis, U.S. House Financial Services Committee Chairman Barney Frank (D-Massachusetts) presented a slate of new policy options to help stabilize the housing market and address the current economic downturn in a speech to the Boston Chamber of Commerce on March 20, 2008.

Representative Frank’s recommendations include:

• Establishment of a Financial Services Systemic Risk Regulator that would enhance consumer protection by regulating, instead of forming market behavior
• Reformation of the regulatory system
• Reassessment of capital, margin and leverage requirements
• A pledge to monitor auction rate securities and municipal bond markets
• Quick action on Congressman Frank’s housing crisis legislation

The U.S. House Financial Services Committee will be holding hearings to discuss this legislation on April 9th and 10th.

Entitled “Using FHA for Housing Stabilization and Homeownership Retention,” the April 9 hearing will be held at:

2128 Rayburn House Office Building
Washington, D.C.
10:00 a.m.

(a time and location for the April 10 hearing will be announced)

The hearing will also be available live via webcast. For more information, click here.

Congressman Frank’s March 20 announcement is reprinted below.

Should you have any questions or comments, please do not hesitate to contact this office.

Frank Calls for Significant Changes in Financial Services Regulation

Washington, DC – Congressman Barney Frank today discussed a number of new policy options to help stabilize the housing market and address the current economic downturn. During a speech to the Greater Boston Chamber of Commerce, Mr. Frank called for the following:

• Consider Establishing A Financial Services Systemic Risk Regulator: Congress should seriously consider establishing (or empowering the Federal Reserve to act as) a “Financial Services Risk Regulator” that has the capacity and power to assess risk across financial markets regardless of corporate form and to intervene when appropriate. In exchange for potential access to the discount window for non-depository institutions, this regulator could have enhanced tools to receive timely market information from market players, inspect institutions, report to Congress on the health of the entire financial sector and act when necessary to limit risky practices or protect the integrity of the financial system. Consideration should focus on how to:

• Regulate Market Behavior Not Form. Since the repeal of Glass-Steagall, a host of new players have emerged and old ones are doing new things. To the extent that anybody is creating credit they ought to be subject to the same type of prudential supervision that now applies only to banks;

• Enhance Consumer Protection. This crisis shows that consumer protection, safety and soundness and systemic risk are intertwined;

• Reform the Regulatory System: Consolidate the duplicative regulatory structure.

• Reassess our Capital, Margin and Leverage Requirements (and the nature of “capital” itself). This crisis has illustrated that seemingly well-capitalized institutions can be frozen when liquidity runs dry and particular assets lose favor.

• Pledge to Monitor Auction Rate Securities & Municipal Bond Markets. With cities’ ability to raise bond revenue compromised by bond insurers’ risky activities in the mortgage market, the Committee held hearings to hold insurers accountable. To help ensure that auctions of municipal bonds do not fail due to these disruptions, Financial Services Committee members prompted the SEC to clarify that cities and certain educational and health care providers could bid in auctions of their own bonds. In addition, Chairman Frank will continue to work with the Education and Labor Committee to monitor the student loan markets to ensure that students have access to credit for education; and

• Quick action on Mr. Frank’s comprehensive legislation to address the housing crisis. Such legislation would (1) provide at least $10 billion in loans to states to address the foreclosure crisis; and (2) expand the FHA loan program to offer guarantees to refinance at-risk borrowers into viable mortgages. In exchange for accepting a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. Frank announced this proposal last week and will be holding hearings on it April 9 and 10th. For more information: http://financialservices.house.gov/FHA.html

In his remarks this morning, Mr. Frank noted that the House of Representatives has passed a number of bills to address the housing crisis:

• Economic Stimulus legislation to (1) help mitigate diminished consumer spending and (2) temporarily raise the conforming loan limit to increase liquidity in the mortgage market

• Subprime lending legislation to fill gaps in the existing regulatory framework — establishing meaningful rules for historically unregulated entities like mortgage brokers and secondary market operators central to our new mortgage finance system

• GSE modernization legislation to ensure real, world-class regulation of the Housing GSEs (Fannie Mae, Freddie Mac and the Federal Home Loan Banks)

• FHA modernization legislation.

http://financialservices.house.gov/

 

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