WASHINGTON (Reuters) - The top U.S. securities regulator is reasserting his authority in the final months of his tenure, after weathering criticism that his agency stood by while Bear Stearns collapsed in March.

U.S. Securities and Exchange Commission Chairman Christopher Cox urged Congress last week to give the SEC the authority to supervise investment banks and take action if a firm is in danger of collapsing.

While it's unclear if he'll win that argument -- and any decisions on revamping financial regulation look set to be made next year by a new Congress and new administration -- Cox's stance has drawn attention.

"Perhaps belatedly, Chairman Cox has drawn a line in the sand and delivered to Congress a persuasive and cogent argument as to why the SEC should permanently remain the main supervisor of investment banks," said former SEC commissioner Roel Campos, now a partner at Cooley Godward Kronish.

The country's four largest investment banks -- Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz), Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz), Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) -- have elected to be supervised by the SEC. But that supervision is currently voluntary.

The SEC says Bear Stearns, that was also under voluntary supervision, was well capitalized before a crisis of confidence caused the bank's clients to flee.

But the perception that the agency was on the sidelines was heightened by the prominent role of the U.S. Treasury and Federal Reserve in organizing an emergency sale of Bear Stearns to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz).

Cox, a congressman for 17 years and known for seeking middle ground among his commissioners, faces competition from other regulators for the supervision of investment banks.

Fed officials have argued that they need more oversight of the broker-dealer firms now they are allowing them to borrow money from the central bank.

And Federal Deposit Insurance Corp Chairman Sheila Bair has said her agency, which oversees the resolution of failed banks, might play that role of liquidating investment banks.

Cox says investment banks need a different regulatory structure from commercial banks, whose primary regulator is the Fed. He wants the SEC to have the authority to regulate the investment banks' capital levels, liquidity, risk management and internal control standards.

U.S. policymakers are grappling with how to reform the country's financial regulation regime that has its foundation in the 1930s.

Treasury Secretary Henry Paulson began a review of the country's financial regulatory system last year before the housing market started to crumble and bring pieces of the financial industry down with it.

Paulson's blueprint, unveiled in March, proposed to give new powers to the Federal Reserve and streamline regulators, including merging the SEC with the Commodity Futures Trading Commission.

The SEC and the Federal Reserve recently formalized an agreement to share information about the investment and commercial banks, a step seen as a way to plug regulatory gaps while Congress figures out how to reform financial regulation.

The Fed has a substantial advantage over other regulators as it has the ability to lend money to financial institutions.

Since March, Cox has urged Congress to give it, or another agency, legal authority to oversee the investment banks, but until last week he never explicitly told Congress it should be the SEC.

"He is partly defending his turf and responding to people within the agency saying that he's been too passive," said James Fanto, a professor at Brooklyn Law School who specializes in banking and securities law.

"The SEC is saying, 'no, keep us involved in it, we should still be the main regulator'," Fanto said.

Besides seeking authority over the investment banks, Cox has flexed the SEC's muscles in other areas this month, announcing a crackdown on market manipulation through false information and abusive short-selling -- both activities fingered for the Bear crisis.

And Cox has remained firm in telling the markets he intends to broaden an emergency short sale rule for the whole market despite opposition from the hedge fund industry and grumbling from the exchanges.

The emergency short selling rule, which went into effect July 21, is designed to curb abusive short selling in 17 Wall Street firms and mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).

"He's playing catch-up," said James Cox, a securities and corporate professor at Duke law School and no relation to SEC Chairman Cox.

"I have heard grumblings about the noticeable absence of the SEC being a participant in the major discussions, whether it be Bear Stearns, or the design proposed by Paulson (to reform financial regulation)."

(Reporting by Rachelle Younglai; Editing by Tim Dobbyn)

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