Market Turbulence Could Spur Financial Services Legislation

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http://public.cq.com/docs/cqm/cqmidday110-000002570818.html

Market Turbulence Could Spur Financial Services Legislation

The credit and liquidity concerns roiling the world’s markets this week are expected to change the landscape for financial services proposals when lawmakers return in September, including a regulatory overhaul of Fannie Mae and Freddie Mac.

The issue has gained the attention of lawmakers, who have expressed concern that not enough is being done to address mortgage market issues.

“The Federal Reserve, by injecting some liquidity into our markets, has taken, at best, a modest step towards helping to ease the tightening of credit,” said Sen. Christopher J. Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee.

Charles E. Schumer, D-N.Y., who sits on Dodd’s panel, said, “The Bush administration needs to apply a full court press to stave off a severe market downturn. Once the liquidity crisis is stabilized, the administration should consider every tool at its disposal to deal with the mortgage market emergency as quickly and effectively as possible.”

The credit crunch and stock market declines could affect consideration of a regulatory overhaul of mortgage finance giants Fannie Mae and Freddie Mac.

For years, lawmakers have argued over the massive size of companies’ mortgage investment portfolios. The Treasury Department and some congressional Republicans have insisted that the firms’ new regulator be able to reduce the size of the portfolios.

In the face of a broader credit crunch, however, that position may be untenable as the government-sponsored enterprises are two of the largest financial firms in the world and can provide much-needed liquidity to financial markets. Already this week, both Schumer and Dodd have called on the firms’ current regulator to ease the regulatory cap on the firms’ portfolios.