U.S. regulators will begin tackling two of the most contentious parts of financial reform this week as they try to convince lawmakers they can police Wall Street and prevent another financial crisis.
At the first meeting of a new risk council on Friday, they will discuss initial steps for putting in place the Volcker rule, which restricts risky bank trading and investing, a Treasury official said in prepared testimony for a Senate Banking Committee hearing on Thursday.
They will also get started on the list of too-big-to-fail firms that will join some of the largest banks among the group designated for closer regulatory scrutiny to avoid a repeat of 2008 when the disorderly collapse of Lehman Brothers set off a global panic.
"We expect that the council will be in a position to take important steps toward fulfilling several of its core responsibilities at its meeting tomorrow," Deputy Treasury Secretary Neal Wolin said.
At Thursday's hearing on implementing the Dodd-Frank regulatory reforms, Federal Reserve Chairman Ben Bernanke and other top regulators will tell lawmakers how they plan to craft hundreds of rules aimed to making the financial system safer.
They put up a united front in their prepared testimony but questions remain about how well the various regulators will cooperate and whether Congress will allocate enough money to get the job done under a tight deadline.
The small hearing room was standing-room only, with many lobbyists crammed in. But it was only sparsely attended by senators, many of whom had already made plans to leave town to campaign for the Nov. 2 congressional election.
Senator Christopher Dodd, the Democrat who chairs the committee and is not seeking re-election, said the reform law that bears his name would arm regulators with the tools to safeguard the economy from the next bout of financial turmoil.
"Mark my words: There will be another crisis," Dodd said. "Greed and recklessness will rear their heads again."
Some Republicans have said they would seek to roll back some regulatory provisions if their party wins control of one or both houses of Congress in November's election.
Senator Richard Shelby, the committee's top-ranking Republican who would be chairman next year if his party wins enough seats to control the Senate, called the regulatory reforms a symbol of big-government Democratic policies.
"The Dodd-Frank legislation adheres to the worn out Washington theory that more is better," Shelby said, adding the law "delegated to bureaucrats" the authority to devise dozens of financial market rules.
Shelby told Reuters last week he would reopen the reform bill if he chairs the banking committee.
The reform measures aim to close gaping holes in oversight that were exposed during the worst financial crisis in 80 years. Regulators want to crack down on risky lending and investing without choking off the flow of credit vital to sustaining an economic recovery.
Included in the law was the creation of a "systemic risk" council of regulators to look out for potential financial trouble spots and of measures designed to safely shut down failing firms and avoid costly, unpopular government bailouts.
But skeptics question whether the provisions really will end the problem of firms being too big to fail.
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