Congress fearful of financial collapse

The House Financial Services Committee held a hearing on “Financial Market Regulatory Restructuring,” focusing on the risks large banking firms pose on the entire financial system. The Committee discussed what Congress could do to quell those risks and increase systemic strength, as the recent collapse of Bear Stearns stimulated fear of instability in the financial system. Chairman Barney Frank (D-Mass.), said there needs to be a regulatory authority of the financial system. He said he is optimistic of an international agreement to increase regulation.

Treasury Secretary Henry Paulsen testified that the regulatory system is indeed outdated and that some failed financial institutions can have systemic effects. He said that markets are seldom perfect and that it will be difficult to make policy changes quickly. But he said that progress is being made. Federal Reserve Board Chairman Ben Bernanke said that his department has plenty of tools to address threats to systemic stability, leaving decisions to make regulatory changes ultimately up to Congress, but legislation may be needed in the long term to increase oversight of large firms.