Regulators to hash out major new finance regulations this month

Financial regulators are set this month for a series of crucial meetings and decisions as they hash out major new U.S. and international rules that might govern the financial world for years to come.

And as they convene in Washington and Basel, Switzerland, regulators from around the world are coming under heavy lobbying pressure by the financial industry not to overreach while the global economy remains weak.

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In the United States, regulators are starting to lay out how they will oversee "systemic risk" and firms deemed "too big to fail." The Obama administration is also facing pressure from Democrats and consumer advocates to quickly nominate the first head of a new Consumer Financial Protection Bureau (CFPB), created as part of the Wall Street reform bill.

In Basel, international regulators aim to strike a deal on new capital standards — known as Basel III — that will impact the world's largest banks and financial firms.

"Everything else flows from here," said Scott Talbott, senior vice president at the Financial Services Roundtable. "Once you have a CFPB head, you can start defining rules. Once you have Basel III, we'll know capital levels. And once you have the systemic risk council, the regulations can flow. These are major milestones."

The Basel discussions might receive the most attention as financial officials look to forge standards before the heads of the G-20 nations meet in November in Seoul. Discussions are set for Tuesday, with U.S. officials urging higher capital and liquidity standards and requirements for banks to hold more capital.

"Stronger capital standards are absolutely essential as one of the key components going forward to assure the safety of the system," Federal Reserve Chairman Ben Bernanke testified to a commission investigating the causes of the financial crisis.

But overcoming international differences is a formidable obstacle, with various governments looking to shape the rules so they do not disproportionately hurt their domestic financial markets.

Meanwhile, a U.S. council of financial regulators charged with overseeing "systemic risk" is set to meet for the first time in September. Treasury Secretary Timothy Geithner, who serves as chairman of the council, said in August he planned to use the first meeting to lay out a roadmap for implementing new regulations.

The Federal Reserve, Federal Deposit Insurance Corporation and other regulators have already begun to hold meetings, propose new rules and, in some cases, adopt new regulations. But the council meeting will mark the first time regulators meet in full as a public body.

Wayne Abernathy, executive vice president at the American Bankers Association, said the council meeting will be an important juncture to understand how regulators attempt to collaborate as they implement new rules.

"The council was not given the responsibility to coordinate the implementation of Dodd-Frank," he said, using the shorthand for the financial reform bill. "I think there has been an effort by Geithner to step into that role."

The council also holds the power to determine whether large non-bank financial companies should face more stringent oversight from the Federal Reserve. The council will base its determinations on 11 factors, including a firm's leverage, interconnectedness and the value of its assets.

The financial industry is closely watching those deliberations. Companies including Goldman Sachs, Citigroup, J.P. Morgan Chase and Ford Motor Credit have already begun meeting with the Federal Reserve and other regulators as they look to enact new rules on derivatives and other financial products.

The administration will also face renewed calls in September from Democratic allies to nominate a consumer agency head before the party suffers expected losses in the midterm elections.

Many congressional Democrats, labor unions and consumer advocates have been pushing hard for Obama to nominate Elizabeth Warren.

But Sen. Chris Dodd (D-Conn.) has publicly questioned if Warren, a Harvard professor and champion of the agency, could win the 60 votes necessary to overcome procedural hurdles.

The White House has said repeatedly she is among the candidates under consideration but the president has not yet made a decision.

The Senate would have about a month to consider a potential nomination before recessing for the elections. If the Senate does not act before the recess, the stakes might quickly increase after Election Day.

Winners in special Senate elections in Delaware, Illinois and West Virginia will be seated immediately after Election Day, rather than in January.

Republican Rep. Mike Castle is considered the frontrunner for the Delaware seat and the Illinois race is a tossup, meaning Democrats might hold two fewer votes for a confirmation battle in a lame-duck session of Congress.