Dodd, Frank Vow to Work With White House to Craft a More Robust System

Senate Banking Committee chairman Christopher Dodd and House Financial Services Committee chairman Barney Frank yesterday pledged to cooperate with the Obama administration to enact legislation to "create a new, more robust" financial regulatory system by the end of the year.

In a two-page letter sent to President Obama ahead of this week's G-20 summit meeting in London, the two chairman noted that the country is in the midst of "the most severe economic crisis in generations." But they promised to work "expeditiously, carefully and deliberately to craft comprehensive reform premised on the lessons learned from this crisis and designed to provide a framework for more effective supervision and regulation going forward."

The letter comes as Frank, a Massachusetts Democrat, has said that the first step in financial regulatory reform is the creation of a systemic risk regulator. Dodd, a Connecticut Democrat, also supports a systemic regulator, though it's not clear if the pair agree who should run it and Dodd appears to be proceeding at a slower pace than Frank.

Several individuals that have testified before Dodd's committee recently argued that the Federal Reserve is best poised to serve as the systemic regulator, though Dodd has said that he may prefer it if several agencies jointly oversee systemic risks. Several securities experts have also warned that a systemic regulator should not have the authority to overrule a "prudential regulator," presumably an enhanced Securities and Exchange Commission that would continue to be charged with investor protection.

The letter acknowledged that the two legislators already agree on the core principles for modernizing the financial regulatory system, "including providing for systemic risk regulation, strengthening consumer and investor protection, streamlining prudential supervision, and addressing gaps in regulation."

"We also recognize that the mobility of capital means that, while the ultimate decision as to what rules to adopt is a sovereign decision of each individual nation, success in this effort requires us to consult closely with other major financial centers with the goal of achieving appropriate coordination and minimizing any opportunities for regulatory arbitrage," they added.

In addition, Dodd and Frank pledged to "redouble" their efforts to promote "openness, transparency and plain language throughout our financial system," and to support comprehensive reform of the corporate governance and executive compensation of financial institutions.

"We will continue to work together with your administration to ensure a new corporate governance framework which demands strict accountability of executives and promotes long-term value and growth for shareholders, companies, workers and the economy at large," they said.

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