Washington — The senior House Democrat in charge of overhauling the nation’s banking regulations warned Monday that foreign banks would be denied access to the U.S. system if they become an “escape hatch” for risky investments.
Opponents of President Barack Obama’s plan to clamp down on banks and other financial institutions say business will move offshore where rules will be more relaxed.
Rep. Barney Frank, chairman of the House Financial Services Committee, said his legislation will require the Treasury Department to certify that foreign governments are cooperating with the stiffer U.S. regulations. If a country’s rules are considerably more lax, its banks will not be allowed by the Federal Reserve to access the U.S. system, he said.
He said he has discussed the need for international cooperation on financial regulations with Treasury Secretary Timothy Geithner as well as officials from the European Union and other foreign officials.
The Obama administration announced in June its plan to tighten rules governing financial institutions. The proposal would regulate new corners of the financial market such as hedge funds and discourage firms from becoming so big that they threaten the broader economic system.