WASHINGTON (Reuters) - U.S. regulators racing to implement new financial market policing powers will appear together before a Senate committee this week to face questions likely tinged with election-season politics.
Federal Reserve Chairman Ben Bernanke and five other top regulators are due to testify to the Senate Banking Committee on Thursday about how they intend to put in place a broad-ranging regulatory overhaul that was approved after rancorous debate just two months ago.
Republicans are keen to paint the regulatory reform as a big government takeover of private industry that will jeopardize the economic recovery by driving up borrowing costs for consumer and businesses.
Democrats are eager to argue that their response to the worst financial crisis in 80 years will curb Wall Street excesses without choking off economic growth and that progress is already being made.
"I'm pleasantly surprised at how much work is actually being done by the regulators," said committee chairman Christopher Dodd. "It hasn't gotten a lot of attention."
Regulators must work together and resist industry attempts to weaken rules, ensuring the policies are tough enough to ward off another financial crisis but flexible enough that they won't choke off economic recovery.
On Friday, regulators convene the first meeting of the Financial Stability Oversight Council, a group created under the law to detect risks to financial markets before they threaten to bring the system to its knees.
Thursday's hearing comes a little over a month before the November 2 congressional elections, helping to serve as a stage for political posturing.
Senators on the panel said they would probe regulators on broad issues such as how they plan to avoid turf fights while also focusing on specifics such as how the law will affect community banks.
While there will likely be plenty of political rhetoric on display Thursday, the law so far has not been a top election year theme for either party.
"I just don't think it's much of a campaign issue," said Republican Senator Bob Corker, a member of the Senate Banking Committee, who said that until regulators move forward with rules the law does not have much impact on voters.
By far the biggest election issue on voters' minds is the still-weak state of the economy, more than one year after the recession officially ended. Unemployment stands at an uncomfortably high 9.6 percent, and worries persist about access to credit for both small businesses and individuals.
The financial reform law has, however, proven popular with the public, according to a recent USA Today/Gallup poll. The survey showed that 61 percent of those polled approve of the law while only 39 percent approve of the health care overhaul and 43 percent approve of the last year's stimulus bill.
Despite the continuing debate among lawmakers, the real action has moved to the regulatory agencies who must put the Dodd-Frank law into practice.
Friday will mark a milestone when the stability council meets for the first time since the law was enacted. The council is led by the Treasury secretary and all the other major financial regulators have a seat at the table, including the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corp.
The meeting itself is expected to mostly focus on organizational and housekeeping matters but it could provide some clues as to how it will operate.
"I think the most important thing we could get out of the FSOC meeting is an accurate timetable for when the council plans to act on key decisions, such as defining what is a systemically significant non-bank financial firm," said Jaret Seiberg, an analyst at Concept Capital in Washington.
Industry officials and members of Congress are closely watching to see whether regulators on the council will work together or if turf fights will be the norm.
The challenges posed by having a committee rather than one agency lead the government's systemic risk oversight duties was on display this week.
The FDIC had planned to adopt a rule on September 27 that would have begun putting in place how it plans to liquidate any large, failing financial firms that the oversight council decides should be seized by the government.
The FDIC vote was delayed because other members of the council wanted more time to review the agency's proposal before it was put to a vote. It was a small hiccup but a sign agencies may find it difficult to act on their own.
"There is lots to be worked out behind the scenes," said Bert Ely, a banking consultant based in Alexandria, Virginia.
The individual agencies face, by Washington's regulatory standards, a short window to make some key decisions.
For instance, within the next 10 months a new Consumer Financial Protection Bureau has to be up and running, and the Fed must write rules limiting the amount banks can charge retailers when a debit card is used.
The Commodity Futures Trading Commission is also working furiously, writing detailed regulations that will spell out the details for its oversight of the previously lightly regulated $615 trillion derivatives market.
Reporting by Dave Clarke; Editing by Tim Dobbyn