WASHINGTON (Reuters) - Sen. Charles Schumer on Wednesday said he welcomed foreign investment but called for more transparency among government-controlled funds riding to Wall Street's rescue by pumping billions of dollars into major banks damaged by the subprime mortgage crisis and parched credit markets.
More transparency is needed on how these sovereign wealth funds work and who makes the investment decisions for them, the New York Democrat told the Reuters Regulation Summit.
Some critics say funds created by governments in the Middle East and Asia may buy and use minority stakes in Western companies to try to push their political agendas.
But the funds have been cautiously welcomed nonetheless since big U.S. banks need capital to offset billion-dollar write-downs related to the subprime mortgage fallout.
"Compared with the choice of Citigroup (C.N: Quote, Profile, Research, Stock Buzz) laying off another 20,000 people, I'd rather have the sovereign wealth funds in there," said Schumer, chairman of Congress' Joint Economic Committee. "We can't be one of these walled-off medieval-type countries."
Citigroup said on January 15 it raised $12.5 billion from investors including former Chief Executive Sanford "Sandy" Weill, Singapore's and Kuwait's governments, and Saudi Prince Alwaleed bin Talal, the bank's largest individual shareholder.
The same day Merrill Lynch MER.N said it raised $6.6 billion from a group including U.S., Japanese and Kuwaiti investors.
Charlie McCreevy, internal market commissioner for the European Union, has called the funds a welcome source of capital, although there are some legitimate concerns.
U.S. Securities and Exchange Commission Chairman Christopher Cox has sounded alarm bells about transparency and conflicts of interest when governments are both regulator and regulated.
SEC commissioner Paul Atkins cited concerns about transparency and disclosure, but said "for the most part our markets should remain open and free."
"We have seen where some of these issuers were in a bind as far as capital goes and so we have had people, foreigners, and maybe they are connected to the government, step up to the plate and put their money in there," Atkins told the Reuters summit. "They are taking a risk."
The President's Working Group on Financial Markets, headed by the Treasury Department, is looking at sovereign wealth funds and has said the International Monetary Fund is uniquely positioned to identify model behavior for the funds.
Schumer said he was happy with a newly strengthened U.S. law to review foreign deals for national security implications. The inter-agency Committee on Foreign Investment in the United States (CFIUS) reviews corporate acquisitions involving foreign buyers.
"Right now, I'm happy with CFIUS and the regulatory ability of regulators to look at this," Schumer said. "At this point, I don't know how you do legislation... I think it's a bad idea to make any blanket regulation except careful scrutiny of each one."
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)
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