US Rep Frank To Seek To Toughen Up Subprime Lending Rules

The U.S. government's overhaul of the financial system needs to aggressively address a number of issues, including putting new limits on executive compensation for top executives and improving the operation of the securitization markets, a top House Democrat said Tuesday.

House Financial Services Chariman Barney Frank, D-Mass., said the first step for policymakers will be the creation of a systemic risk regulator to help prevent market shocks such as those that lead to the current crisis. Consensus is growing for that power to reside with the Federal Reserve, he said, but whichever agency is chosen it needs to have the authority to shut down major financial institutions in an orderly fashion.

Serving as a backdrop for efforts, he continued, will be the growing public displeasure surrounding the government's $700 billion rescue package for Wall Street. Frank said he plans to drag eight top banking CEOs before his committee next week to discuss how they've used government funds and the lavish compensation packages that have increased public skepticism.

"They are getting a lot of money, they made a lot of mistakes, they have to lean over backwards not to offend people," Frank said at a press conference discussing his committee's 2009 agenda.

He ticked off a wide-range of issues that he hopes to pursue this year: providing debt-relief for poor countries, a government insurance program for municipal bonds, and consideration of an optional federal charter for the insurance industry, particularly life insurers. Additionally, he said the panel would eventually address what to do with now government-controlled Fannie Mae (FNM) and Freddie Mac (FRE).

One issue he said he wants to address early is altering the securitization market, potentially instituting some form of loss-sharing on firms that securitize loans and send them into the market. He said this could be done by requiring firms to be responsible for some portion of the securitization that is sold out into the market.

"If enough bad loans are made and securitized it's hard to protect yourself against them. Not enough due diligence can be done," Frank said.

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; [e-mail]

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