Rep Frank vows more financial policing

NEWTON, Massachusetts Mon Oct 6, 2008 2:57pm EDT

NEWTON, Massachusetts (Reuters) - Blaming lax regulation for what turn into the worst U.S. financial crisis since the Great Depression, Rep. Barney Frank vowed on Monday to police banks and hedge funds more actively to avoid future financial meltdowns.

Frank, the powerful chairman of the House Financial Services Committee who has been credited with largely shaping the $700 billion bailout plan, also said he expects the cost of to be much less.

Frank said next year's agenda will include capping runaway executive compensation, imposing restrictions on certain financial instruments and regulating certain areas of the market that are current not restricted.

"It was the lack of regulation that led to this crisis ... We have to step in and impose regulations that will not allow this to happen again," Frank, a Massachusetts Democrat, said at a news conference in Newton, Massachusetts.

He promised to hold hearings on hedge funds, the loosely regulated portfolios that have been blamed for accelerating the financial crisis after investing heavily in both mortgage-backed securities and the insurance contracts that investment banks tried to write on them.

But Frank said he had no plans to regulate hedge funds as entities, but concentrate instead on regulating the activities or markets they have been active in.

The Securities and Exchange Commission has tried to regulate the $1.9 trillion hedge fund industry -- with what some said was little success. Frank said Monday the Federal Reserve would be best suited to monitor markets that hedge funds often trade in.

Frank also said that the cost of the bailout package designed to avert a deep global recession will be far lower than the $700 billion authorized last week. It may even cost taxpayers nothing, Frank said, declining to put numbers on the deal.

"The cost will be significantly less than $700 billion, but how much less is uncertain," he said.

Frank spent much time at the news conference speaking about unregulated complex securities like credit default swaps that he blamed for the heavy losses that drove Lehman Brothers Holdings Inc into bankruptcy protection and Bear Stearns into the arms of JPMorgan Chase & Co.

Speaking about how the bailout will work, he said the U.S. Treasury Department will buy toxic mortgage-backed securities from financial institutions but will not touch credit-default swaps under the bailout program.

U.S. stocks plunged to their lowest level in about four years on Monday amid fears the widening credit crisis would drag the global economy into recession.

While Frank expects to push for greater regulation next year, he also said he is worried that political realities could make it difficult to impose the needed regulations.

"I am worried about a conservative effort to defeat what we hope to do next year, to restrict the excessive risk-taking that these institutions, hedge funds, investment banks, have taken," Frank said.

(Editing by Jeffrey Benkoe)

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