Sarbanes urges tougher bank, hedge fund regulation

By Sudip Kar-Gupta

PARIS (Reuters) - Former Sen. Paul Sarbanes, behind one of the most sweeping set of finance reforms since the Great Depression, said on Friday investment banks and hedge funds needed tighter regulation amid the global subprime crisis.

Sarbanes said a recent move by the U.S. Federal Reserve to rescue Wall Street investment bank Bear Stearns BSC.N had to be accompanied by stricter controls of a sector that has racked up billions in losses from the credit crunch.

"I don't think you can set access to the Fed in this unprecedented manner without more oversight from the Fed and other agencies," said Sarbanes, speaking after an Institutional Investor Educational Foundation conference in Paris.

"It's not a free pass. I think they'll review the investment banks more closely than they have in the past."

In 2002, Sarbanes co-authored the Sarbanes-Oxley corporate reform law after a wave of corporate scandals that began with the 2001 bankruptcy of U.S. utility giant Enron Corp. and telecoms group WorldCom.

The Sarbanes-Oxley Act has been praised for restoring investor confidence following the Enron and WorldCom scandals but also criticized for overburdening firms with regulation.

The act has also been blamed for New York losing out on stock market listings to London, where authorities have opted for a less rigid form of regulation.

However, Sarbanes said the New York regulatory environment still had advantages over London and that many emerging markets companies who have listed on London's secondary AIM market might have difficulties meeting U.S. requirements.  Continued...