A fight is brewing between regulators and Congress over how to develop a covered bond market, with the latest salvo expected to be fired as soon as Tuesday, when the House Financial Services Committee could begin voting on a bill tackling the issue.

The legislation by Rep. Scott Garrett, R-N.J., would establish a regulatory framework for covered bonds, including a regime to handle the failure of a bond issuer. The bill is expected to pass and has already attracted the support of key Democrats, including House Financial Services Committee Chairman Barney Frank and Rep. Paul Kanjorski, the panel's chairman of the capital markets subcommittee.

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