Barney Frank was a rare voice arguing for more regulation
The World Economic Forum in Davos has begun with bankers and regulators clashing on plans for more regulation.
"We need good regulation, better regulation but not more regulation," Lord Levene, chairman of the insurance market Lloyd's of London said.
Barclays head Bob Diamond also suggested that more rules would drive banks out of London and New York.
The debate comes after US President Barack Obama proposed breaking up banks that are "too big to fail".
"We need a strong financial centre in New York and a strong financial centre in London," said Mr Diamond. "This is a time when isolated actions in the UK and US are not constructive."
He added: "I have seen no evidence ... to suggest that shrinking banks and making banks smaller and narrower is the answer."
Mr Obama's proposals, which need congressional approval, would prevent banks or financial institutions that own banks from owning hedge funds and bar them from proprietary trading - investing to make a profit for themselves rather than on behalf of customers.
Treasury minister Lord Myners, shadow chancellor George Osborne and the head of the Bank of England, Mervyn King, have endorsed those plans.
'Rules are good'
Lord Levene told attendees that more regulation in the US and UK may drive banks and businesses to emerging financial centres - such as Singapore, Shanghai and Zurich.
He pointed to the huge influx of business into London after the US passed the Sarbanes-Oxley act following the Enron and Worldcom scandals. The move, aimed at holding company directors to account, led to higher costs and an increased threat of legal action for firms listed in New York, he said.
That led to record listings on the the London Stock Exchange in the years leading to the financial crisis.
"In the City of London, we want to build statues to Mr Sarbanes and Mr Oxley for all the business they gave us," he joked.
Lord Levene also criticised efforts to curb large bank bonuses - a source of public outcry in the US and UK. "Compensation is a side issue," he said.
'Rules are good'
But Barney Frank, the chairman of the House Financial Services Committee, who took part in the same CNBC-hosted debate "The Next Global Crisis", disagreed that financial institutions should be left to make their own reforms.
"Rules are a good idea," he said.
He acknowledged the effects of the Sarbanes-Oxley act on US companies, but said that it was a huge step to avoid future crises that regulators in London and Washington now agreed on more regulation.
"You can't play mommy and daddy against each other now," Mr Frank said.
Meanwhile, the deputy head of the Chinese central bank said that weak growth was the biggest threat to the global economy.
"The real risk for the global economy is weak and volatile growth," said Zhu Min, deputy governor of the People's Bank of China.
"Even by the end of 2010, US GDP will be at the same levels as it was in 2007. Three years gone for free, economically."
Pascal Lamy, the head of the World Trade Organisation, told the BBC that, without the growth from emerging economies, the global recession would have been much worse.
"Frankly, we should be happy that some places are growing faster than others," he said.
"Thank God we now have [countries such as China, Brazil, India and Indonesia] pulling much more than in the past."