Lawmakers worry about haste in financial regulatory reforms

WASHINGTON -- Lawmakers on Thursday broadly supported action to fix the nation's financial regulatory system but cautioned that moving too quickly without paying attention to the details could have disastrous consequences.

"In our rush to save our economy, we certainly don't want to suffocate it," Rep. David Scott, D-Ga., said at a House Financial Services Committee hearing at which Treasury Secretary Timothy Geithner outlined the administration's plan to overhaul the tangled web of financial regulation.

Geithner, however, asked that Congress move "as quickly as you can," arguing the United States is "still in the midst of a very challenging period" and said the government needs more tools to respond.

"To address this will require comprehensive reform, not modest repairs at the margin, but new rules of the game," Geithner said, arguing that while the government cannot prevent all financial crises, it can build a "fire break" to contain the damage.

On Wednesday, Treasury sent Congress a 61-page draft of legislation for one piece of the financial regulatory reform package. The measure would give the government power to take over and systematically dismantle a failing non-bank financial institution. The lack of such power has forced the government to repeatedly prop up insurance giant American International Group.

Randall Kroszner, a University of Chicago business school professor who until earlier this year worked on financial regulatory issues as a Federal Reserve governor, said it may be important for Congress to move on the so-called resolution authority piece.

"It has the potential to significantly reduce uncertainty that otherwise would make markets and institutions more fragile," he said.

While both Democrats and Republicans expressed support for the administration's approach, there was some criticism.

Some lawmakers, such as Rep. Scott Garrett, R-N.J., expressed concern that identifying firms as being systemically important could lead investors to take additional risks in those firms, assuming the government would step in to prevent failure. "We could really end up doing a heck of a lot more harm than good," he said.