With Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke hogging the spotlight during most of the year-long credit crunch, it was easy to forget that the Securities and Exchange Commission was still a regulating body.

But over the last week, S.E.C. Chairman Christopher Cox has elbowed his way back into relevance, first by increasing restrictions on naked short selling, and today laying out a strong case for why the S.E.C.—and not the Federal Reserve—needed more regulatory powers over investment banks. In doing so, he questioned the need for these banks to have long-term access to the Federal Reserve's new lending facilities created after the demise of Bear Stearns.

In testimony delivered to the House Financial Services Committee, Cox also warned against extending existing commercial bank regulation to investment banks as there is no easy "apples to apples" comparison between the two businesses. Although in recent years the lines that differentiated investment banks from commercial banks have faded, their fundamental roles are still different.

"The core business of investment banking is facilitating capital raising—whether through trading, underwriting, or ancillary services—while the core business of commercial banks is taking deposits and making loans," Cox said.

Overly restrictive regulation of investment banks that would "intentionally discourage risk taking, reduce leverage, and restrict lines of business" would "fundamentally alter the role that investment banks play in the capital formation that has fueled economic growth and innovation domestically and abroad," Cox added.

For that reason, the more fundamental question is whether investment banks should have access to a government liquidity backstop.

"And if Congress were to answer that question in the affirmative, it is difficult to imagine that our markets would not produce new entities, perhaps hedge funds or other nonregulated firms, to take over the higher-risk capital markets functions of the formerly robust investment banks," Cox said. "That, in turn, would simply raise today's questions anew."

Also testifying was New York Federal Reserve Bank President Timothy Geithner who made a competing case for why the Fed needed stronger oversight over investment banks. Geithner said that even though investment banks had reduced their borrowings from the Fed in recent weeks, the lending facilities were providing a confidence backstop to markets. And if the banks were to continue to have the safety net, then the Fed should have a stronger regulatory function.

"It's very important that we have a role in consolidated supervision of these institutions because you will not have good judgments made by this central bank, this Federal Reserve, in the future unless we have the direct knowledge that comes with supervision," Geithner warned.

Geithner also disagreed with President Bush and Paulson's stated plan of keeping the recently saved Fannie Mae and Freddie Mac functioning in their present form.

"I believe that there is going to have to be some very fundamental rethinking of the future of these institutions going forward," Geithner said. "The current balance is probably untenable over the longer term."