Regulatory Reform at a Standstill, One Year Later

WASHINGTON (TheStreet) -- Congress and bank regulators continue dithering about needed reform in the financial sector, while the same glaring holes in the regulatory framework that caused this mess remain.

Yes, we survived the worst of the meltdown, from Lehman Brothers' bankruptcy to Washington Mutual's failure last September to the bottoming of financial stocks in early March. But this required hundreds of billions of dollars in government capital infusions, which began in late October with the Treasury taking equity stakes in the largest bank holding companies, including Bank of America (BAC), Citigroup (C), Wells Fargo (WFC) and JPMorgan Chase (JPM).

There have been 104 bank failures since Washington Mutual was seized by the Office of Thrift Supervision, and we would certainly have had many more if the Federal Deposit Insurance Corp. hadn't boosted depositors' confidence by temporarily increasing the basic individual account deposit insurance limit to $250,000 through 2013 and waiving all limits on deposit insurance for non-interest-bearing deposit accounts (set to expire June 30, 2010).

President Obama scolded Wall Street on Monday and pledged his proposed reforms would become law. The House Financial Services Committee has a hearing next week. The crisis that required the Troubled Asset Relief Program, the obscenely expensive bailout of AIG (AIG) and a huge increase in the federal deficit is certainly as important as the health care fiasco currently dominating political discourse in this country.

It's time for Congress, the President and the Treasury to cut to the chase and make the following three things happen:

1. Increase Capital Requirements for Financial Institutions

Early this month, the Treasury said it was working to "reach a comprehensive international agreement" on new regulatory guidelines for capital and liquidity by the end of 2010, with "implementation of the reforms effective Dec. 31, 2012.

With the current crisis mainly resulting from activities in the U.S., there's no reason to wait for agreements with other countries to increase the capital requirements for banks and other financial institutions. The huge capital raises by most of the large banks provide a clear indication that the normal capital requirements were not high enough for many to survive the crisis. The Treasury and the Federal Financial Institutions Examination Council, which includes all national regulators of banks, thrifts, holding companies and credit unions, should quickly put together a set of robust capital requirements for domestic institutions that can set the standard for a later international agreement.