Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said today that a top panel priority will be working on legislation that would create an optional federal charter, “particularly for life insurers.”

Frank said at a news conference that he would leave the issue of future regulation of insurance to Rep. Paul Kanjorski, D-Pa., chairman of the panel’s Capital Markets Subcommittee.

“I will let Kanjorski figure it out,” Frank said.

Advocates of the optional federal charter approach to insurance regulation want to give insurers a choice between coming under the traditional state-run insurance regulatory system or coming under the jurisdiction of a new federal regulatory system.

One incentive for federal regulation of insurers is that European regulators have been pushing for the U.S. to establish an OFC, Frank said.

Frank said the committee’s first priority would be working on legislation establishing a systemic risk regulator covering all forms of financial activity, and that the new systemic risk regulator would have “some flexibility to decide what the risk is.”

Frank said he hopes to have a general outline of how the system risk regulation would work by April, in time for the upcoming meeting of the Group of Twenty Finance Ministers and Central Bank Governors, which is popularly known as the G-20.

Hedge funds and credit rating agencies will be evaluated as part of discussions to create a systemic risk regulator, Frank said.

There is an “emerging consensus” that the regulator is likely to be the Federal Reserve Board, and that it would be provided “with powers that do not currently exist to curb systemic risk,” Frank said.

“Currently, there are too few restraints on financial institutions” that lend on risky assets,” Frank said.

One way to curb risk might be to require that entities that package loans into securities retain at least part of the risk, to give the entities “some incentive not to make bad loans,” Frank said.

Frank said he also will be working to move jurisdiction over financial derivatives to his panel, from the House Agriculture Committee. But he said he wants to leave regulation of edible commodities to the Ag panel.

Frank said he will work to restore balance between federal and state regulators on consumer protection issues.

The Bush administration pushed federal preemption of state regulators too far, Frank said.

One consumer protection tool being considered is creation of a Financial Product Safety Commission, Frank said.

The American Council of Life Insurers, Washington, has issued a statement welcoming Frank’s decision to make creating a national insurance regulatory option a project that should be pursued this year.

“Financial regulatory reform would be incomplete without a federal insurance office,” says ACLI spokesman Steven Brostoff. “There is widespread agreement that the federal government must develop better tools to monitor systemic financial risk, but this objective would be defeated if insurance is left out of the reform package. We look forward to working with Chairman Frank and others in Congress on closing the gaps in financial oversight.”