Treasury official urges quick action on financial regulatory reform

Besides building confidence in the financial system, reform could trigger more investment in innovation and new technologies that was woefully underfunded before the financial crisis as firms poured trillions into the housing market.  

"We need reform, and we need to get it done now," he said.  

Barr pointed to the "shadow banking system" as a harbinger of the 2008 financial meltdown. Those companies acted like banks but aren't regulated, weren't disciplined, took on risk, pressured traditional banks to engage in unsustainable practices and grew nearly as large at the traditional financial system, he said. 

"We need to bring derivatives trading out of the dark," he said. 

"We cannot rely on the same failed strategy and the same failed regulatory system going forward." 

Moving forward quickly on reform is important because of the devastating effects of the financial crisis, which include a massive loss of jobs, failure of small businesses and a contraction of lending.

"Weak and fragmented regulation and enforcement has been a recipe for a vicious cycle of deteriorating standards," Barr said. 

Without reform, the system is still vulnerable to future crises, and the "expectation that some firms are too big to fail will survive, and risk will build up again in parts of the financial system where regulation authority is lacking," he said. 

Opponents of reform who are slowing it down or trying to weaken legislation "are not speaking to the real interests of community banks, small businesses or American families," he said. "Opponents are seeking to protect vested interests on Wall Street that have benefited from the flows in the regulatory system and want to perpetuate those flaws." 

Senate Democrats and Republicans are still trying to work out a deal on a financial regulatory reform bill with a cloture vote planned today for 5 p.m.