Business

FED AND SEC CLASH OVER BANK SUPERVISION

As Wall Street banks retreat in shambles, a new turf war has erupted over who’ll take charge of the government’s attempts to police them – Chris Cox or Ben Bernanke.

Cox, an artful politician who serves as chairman of the Securities and Exchange Commission, made a strong pitch yesterday to Congress that his agency should be in charge of policing investment banks and holding the reins on their free-wheeling ways of risk.

However, Federal Reserve chief Bernanke and his bankers are urging Congress to let the Fed expand its commercial banking powers to control the Wall Street banks as well.

The Fed is also prepared to summon huge piles of private-equity funds to prop up all lenders, sources said. The rule changes being mulled would allow private-equity funds to set money pools off the books to buy into the banks, and to act jointly in such rescues.

Currently, the Fed imposes bank-like restrictions on private-equity funds once they control 10 percent of the voting stake of a bank.

Thus far, the turf war has been a gentleman’s game akin to a debate-team contest.

Cox, along with Bernanke’s hand-picked Fed banker on the frontlines – New York Federal Reserve Bank President Timothy Geithner – blamed the crisis on the government’s current patchwork of agencies and rules.

The Fed says it has first crack at supervising firms because most of them get their money from the Fed.

Cox said investment banks don’t need the same regulation as commercial banks, but even so, the SEC should have expanded authority over them.

The SEC supervises Wall Street’s four largest investment banks – Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley – but the supervision is voluntary.