SEC, Fed push for authority over investment banks

By Patrick Rucker and Rachelle Younglai

WASHINGTON (Reuters) - The head of the U.S. Securities and Exchange Commission on Thursday urged Congress to give his agency authority to oversee investment banks, even as a top Federal Reserve official said the central bank needed similar powers to do its job.

At a congressional hearing on how to modernize financial regulation, the SEC and the Fed laid out similar, if somewhat competing, visions for a new regime capable of monitoring commercial and investment banks to ensure they remain financially sound in order to prevent another credit crisis.

Both SEC Chairman Christopher Cox and New York Federal Reserve Bank President Timothy Geithner said that the current patchwork of regulatory agencies, much of which dates back to the Great Depression of the 1930s, deserved part of the blame for the year-long financial market turmoil.

But Cox said his agency should oversee investment banks, while Geithner said the Fed must have a direct supervisory role over any firms that borrow from the U.S. central bank.

"It's very important that we have a role in consolidated supervision of these institutions because you will not have good judgments made by this central bank, this Federal Reserve, in the future unless we have the direct knowledge that comes with supervision," Geithner told the U.S. House of Representatives Financial Services Committee.

The rise of broad financial services companies, some of which are involved with both commercial and investment banking, has blurred the regulatory lines and reform must establish clear responsibility and authority for overseeing the various types of financial firms, he said.

Where that power will rest is still unclear. The U.S. Treasury on March 31 proposed a framework that would merge the SEC and the Commodity Futures Trading Commission, and also broaden the Fed's supervisory scope.

In his initial response to that plan, Cox had said clearer lines of regulatory authority were needed, but it was not until Thursday that he explicitly called for the SEC to have the primary authority over investment banks.