New focus on overhauling financial regulations

Now that federal regulators have completed tests on the nation’s largest banks, the White House is turning attention back toward efforts to overhaul financial regulations and is aiming to see legislation passed this year, industry sources said.

Staff for the Treasury Department and National Economic Council met with several of Washington’s largest financial industry trade associations on Friday morning to discuss regulatory restructuring. Treasury Secretary Timothy Geithner attended part of the meeting.

{mosads}A source said that the administration conveyed that it would like to see legislation this year, perhaps with a bill passed through the House Financial Services Committee by early July.

Sources said that NEC Director Lawrence Summers is playing a key role in drafting new policies on industry regulations that many have said could wind up being the widest rewrite of the financial markets since the Great Depression.

A key element of the rewrite remains a “systemic risk regulator” to oversee the entire financial sector and to identify institutions whose troubles could lead to much broader problems for the economy.

Officials discussed granting the Federal Reserve greater authority as the systemic risk regulator, sources said, although the government could also set up a council of regulators with the same responsibility. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has supported the Fed gaining new power. The creation of a new regulator would not necessarily remove power from already existing regulators.

On Thursday, federal regulators and the Treasury Department released results of the “stress tests” on the nation’s 19 largest banks. The tests resulted in nine banks needing to raise a combined $75 billion in equity.

“As he said in his March 26 testimony detailing the Administration’s regulatory reform plan, Secretary Geithner believes that we need a single independent regulator with responsibility for systemically important firms and critical payment and settlement systems,” said Andrew Williams, spokesman for Geithner.