Monday, February 18, 2013

Valentines Day Was No Bed of Roses for SEC and CFTC Heads

The Senate Banking Committee spent the best part of its Valentine's Day grilling Fed officials and agency heads about the regulatory implementation of Dodd-Frank. Despite holding the hearings on a day dedicated to romance and love, the Senators certainly did not woo their witnesses with bonbons and soft questioning. The Banking Committee invited an impressive list of witnesses for the day's round of tough questions focused mainly on coordination both domestically and internationally, and the need for adequate cost benefit analysis associated with all this new regulation. Though the banking regulators received a fair share of the questioning, the heads of the SEC and CFTC received the majority of the Committee's attention.

The witnesses of the day were:

  • Honorable Mary J. Miller [view testimony]
    Under Secretary for Domestic Finance
    U. S. Department of the Treasury
  • The Honorable Daniel K. Tarullo [view testimony]
    Board of Governors of the Federal Reserve System
  • The Honorable Martin J. Gruenberg [view testimony]
    Federal Deposit Insurance Corporation
  • The Honorable Thomas J. Curry [view testimony]
    Comptroller of the Currency
    Office of the Comptroller of the Currency
  • The Honorable Richard Cordray [view testimony]
    Consumer Financial Protection Bureau
  • The Honorable Elisse B. Walter [view testimony]
    U.S. Securities and Exchange Commission
  • Honorable Gary Gensler [view testimony]
    U.S. Commodity Futures Trading Commission

Senators Mike Crapo (R-ID) and Jack Reed (D-RI) were most concerned about coordination of the regulation of cross-border swaps transactions.  They questioned SEC Chairman Elisse Walter and CFTC Chairman Gary Gensler at length about what was being done to make sure that new swaps regulations were being coordinated with the EU and elsewhere so that the swaps dealers and participants in the US do not find themselves at a disadvantage due to differences in regulations.  Walter and Gensler testified that their agencies were working closely with their regulatory counterparts in Europe and Asia, as well as IOSCO, but noted that different regulatory initiatives regarding OTC derivatives were at different stages of the process.   The US and EU are close to finalizing their regulations, however, and those markets constitute most of the globe's derivatives transactions.  Gensler and Walter testified that as a result of their coordination efforts, the broader concepts are fairly uniform between the US reforms and the reforms of the EU, Japan, and Canada.  They said that this opens the door to allowing some foreign firms and, in some cases, overseas branches and certain affiliates of U.S. swap dealers, to comply with US swaps regulations by complying with comparable foreign regulations.

Crapo and Reed were also worried that any failures on the part of the SEC and CFTC to coordinate their regulations with one another might leave US swaps participants subject to conflicting, duplicative, or confusing sets of regulations.  Walter and Gensler assured the panel that their agencies were indeed working closely to keep the new swaps regime as streamlined as possible.  

Senator Crapo questioned the witnesses about the potential economic effect of the extensive regulations under Dodd-Frank, and asked the banking agencies as well as the SEC and CFTC to provide the Committee with a cost-benefit analysis of all of the Dodd-Frank regulations on the financial services industry.  He did not put a deadline on this report, but no doubt he wants it promptly.

Senator Testor (D-MT) was concerned two items of SEC business he feels are not getting the Commission's full attention.  First, he asked about the failure of the SEC to meet its JOBS Act deadlines and urged Chairman Walter to make its implementation a priority.  Secondly, Testor wanted to know when the SEC would move on a uniform fiduciary standard for investment advisers and brokers.  He asked that Walter give this topic a push as well.