Cox urged Congress to pass legislation to give the SEC or “another regulator” the explicit mandate to supervise investment banks.

“The statutory no-man’s land that continues ... should not be tolerated indefinitely,” he said.

When asked if the other potential regulator for the investment banks would be the Fed, Cox said: “I want to be deferential to the judgment only Congress can make.”

But he said there is little doubt the lack of an official investment bank regulator has created problems.

“It’s difficult for anyone to say the system worked or that the regulatory gap that exists in statute lacks any consequence,” Cox said.

Former SEC Chairman David Ruder balked at the idea of the Fed having sole supervision over investment banks and said Congress should give the SEC more authority and resources to oversee them.

“The SEC has the ability to understand the risks of the investment banks. I would be cautious in letting the Fed have power over the entire securities and banking system,” Ruder told the hearing.

Sen. Jack Reed, chairman of the Senate banking subcommittee on securities and investment, wants to give the SEC some US$40 million more than it requested for its fiscal 2009 budget, which would include funding for monitoring investment banks.

“We have heard from both Chairman (Arthur) Levitt and Chairman Ruder that that funding is probably overdue ... We will keep pursuing it. I hope we can get additional funding,” Reed told reporters after the hearing.

Asked if he was considering legislation to make the SEC’s supervision of investment banks law, Reed said: “We heard the suggestion by the SEC that their ability would be enhanced by legislation, so certainly we are considering it.”

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