BOSTON—U.S. investment banks should face stricter regulations, Rep. Barney Frank said Wednesday, days after Bear Stearns Co Inc, one of Wall Street's biggest players, was brought down by soured housing market bets.
"There should be some reserve requirements, yes," Frank, who chairs the powerful House Financial Services Committee said when asked whether investment banks should face similar requirements as commercial banks.
Speaking after a town hall meeting in Boston, Frank, a Democrat from Massachusetts, said tackling the issue will be a top priority.
"How to do it in order to preserve the advantages and minimize the abuses is a serious subject that we'll be working on for the next few months," he said.
Frank is also expected to deliver a speech Thursday to outline how U.S. oversight of financial institutions should be fixed to fill in regulatory gaps, according to an aide.
In the speech Frank will emphasize that the U.S. economy, which many on Wall Street say is already in a recession, cannot be fixed until the housing crisis is directly addressed.
The aide said investment banks and commercial banks have grown so much and so complex over the last decade it is becoming more difficult to distinguish differences among institutions.
Now that investment banks are gaining access to the Federal Reserve's discount window, it may mean addressing more explicitly how they might be regulated in the future.
In addition to Bear Stearns, the Securities and Exchange Commission currently regulates Goldman Sachs Group Inc, Lehman Brothers Holdings Inc, Merrill Lynch & Co Inc and Morgan Stanley
"We want to take a look at a number of regulatory avenues to address the breakdown, see what happened and how to fix it going forward," the aide said, without providing any specific policy recommendations.
The Treasury Department is currently studying if the U.S. regulatory structure for banks, securities, commodities and insurance needs to be changed on the federal and state levels.
A final "blueprint" report with recommendations are expected within several weeks.
Commercial banks are required by the Federal Reserve to hold a certain amount of funds against customers' deposits.
Frank said a "lightbulb" went off in his head after former Citigroup Inc chief Chuck Prince told the Congressman the bank would be hurting itself if it put structured investment vehicles, known as SIVs, on the balance sheet.
The SIVs—off-balance sheet entities that issue short- term debt and capital securities and invest the proceeds in longer-term securities—ultimately cost Citi billions of dollars in write-downs and Prince his job.
They are also blamed for accelerating the current credit crisis that has forced the U.S. central bank to cut interest rates rapidly and the Bush administration to search for fiscal policies to try and boost slowing growth.
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