U.S. regulators will put up a united front before a divided Congress on Thursday, promising to cooperate on hundreds of new rules aimed at preventing Wall Street excesses from triggering another financial crisis.
In testimony obtained by Reuters on Wednesday, Federal Reserve Chairman Ben Bernanke and other top regulators said they were well aware of the daunting task ahead.
The hearing before the Senate Banking Committee marks regulators’ first joint testimony since the financial regulatory overhaul was signed into law two months ago.
“It is imperative that regulators work together, with both speed and openness in the implementation of the Dodd-Frank Act in order to dispel uncertainties and foster a smooth transition by the industry,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp.
The reform act, named after the two Democratic lawmakers who spearheaded what became a lengthy, contentious process, was intended to close some of the gaps in oversight exposed after the U.S. housing bubble burst in 2007.
Included in the law were the creation of a “systemic risk” council of regulators to look out for potential financial trouble spots, and new measures designed to safely shut down failing firms and avoid costly, unpopular government bailouts.
Skeptics, however, question whether the provisions really will end the problem of firms being too big to fail. Some Republicans have said they would roll back certain regulatory measures if their party wins control of Congress in November’s elections. They are likely to use the hearing as an opportunity to express some of their reservations about the law.
Bair said the reforms included in the legislation provided tools necessary to “end” too big to fail.
“It must be made clear to these companies that their financial folly could result in losses to shareholders and bondholders and in the dismissal of their senior managers,” she said.
REAMS OF RULES
Bernanke said past regulations did not keep pace with profound changes in the financial system, and the Fed was committed to working with other agencies to implement the new law.
“All told, the act requires the Federal Reserve to complete more than 50 rulemakings and sets of formal guidelines, as well as a number of studies and reports, many within a relatively short period.”
The FDIC has 44 rules to write, and the other agencies have scores more.
“Implementation will require extensive coordination among the regulatory agencies and will fundamentally change the way we regulate large complex financial institutions,” the FDIC’s Bair said.
The Commodity Futures Trading Commission said about 80 global and regional banks would have to register to continue to trade in contracts that let investors bet on a host of variables including interest rate movements and debt defaults.
Democrats are eager to argue that their response to the worst financial crisis in 80 years will crack down on financial firms’ riskiest behavior without choking off economic growth, and that progress is already being made.
Senators on the panel said they would probe regulators on broad issues such as how they plan to avoid turf fights while also focusing on specifics such as how the law will affect community banks.
In addition to Bernanke and Bair, the list of witnesses includes Neal Wolin, a deputy Treasury secretary; Mary Schapiro, chairman of the Securities and Exchange Commission, Gary Gensler, chairman of the Commodity Futures Trading Commission; and John Walsh, acting Comptroller of the Currency.
The same group will convene Friday for the first meeting of the Financial Stability Oversight Council, a group created under the new law to detect risks to financial markets before they threaten to bring the system to its knees.
