DATE: JULY 24, 2009

TO: NCOIL LEGISLATORS

FROM: SUSAN NOLAN

RE: CONGRESSIONAL HEARINGS THIS WEEK ON SYSTEMIC RISK, REGULATORY REFORM

The following information is provided for your review:

  • 7/21 House Financial Services Committee (HFSC) Hearing on Systemic Risk
  • 7/22 HFSC Hearing on Regulatory Perspectives for Reform
  • 7/23 Senate Banking Hearing on Systemic Risk
  • 7/24 HFSC Hearing on Regulatory Perspectives for Reform (Part II)
  • Obama’s Fed Risk Regulator Plan Fades as Lawmakers Back Council (7/23 Bloomberg)
  • Risk Fees Considered to Cover Costs of Failing Institutions (7/23 CQ)
  • Treasury, Fed Dispute on Display in Congress (7/24 AP)

This week the U.S. HFSC and the Senate Banking Committee held a total of four hearings on regulatory reform—one each to investigate systemic risk regulation, and two by the HFSC to hear from federal regulators on President Barack Obama’s reform proposals. The Committee Chairmen hope to send reform legislation to the President this year.

SYSTEMIC RISK HEARINGS

July 21, HFSC: Systemic Risk: Are Some Institutions Too Big to Fail and If So, What Should We Do About It?

Think tank and academic witnesses presented differing perspectives on how to regulate systemic risk including proposals such as consolidating authority at the Federal Reserve, empowering a council of regulators, and raising capital standards for the largest financial institutions. Committee Members—and several witnesses—were critical of the President’s plan to designate the country’s largest financial companies as “Tier 1 Financial Holding Companies,” arguing that it would create an implicit government guaranty, and Chairman Barney Frank (D-MA) said that House reform legislation would not include such determinations. Chairman Frank also noted that reform legislation would repeal parts of existing statutes that require reliance on rating agencies—a proposal supported by members of both Parties.

July 23, Senate Banking Committee: Establishing a Framework for Systemic Risk Regulation

During a first panel of federal government witnesses—which included SEC and FDIC Chairs and representative of the Fed—the SEC and FDIC chairs advocated for the creation of a strong regulatory council to address systemic risk. They argued against granting such authority to the Fed, as did several Senators, and also discussed the need to create a resolution regime for failing nonbank financial institutions, which was challenged by certain Republican Senators. Three of the four private sector witnesses on the second panel also argued for a strong council instead of granting systemic authority to the Fed.

REGULATOR PERSPECTIVE HEARINGS

July 22, HFSC: Regulatory Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals

Chairs of the CFTC and SEC discussed the President’s plan to regulate derivatives and overviewed their Commissions’ efforts to harmonize regulation of similar products. The Chairs supported a two-pronged regulatory approach advocated by the President that calls for enhanced regulation of derivatives markets—including the use of exchanges and central counterparties—and creation of new authorities over derivatives dealers, including capital, margin, and business conduct standards. There was no consensus from Committee members, as positions included, among many others: support for a total ban on CDS; support for the Administration’s proposal; opposition to new limits on derivatives markets.

July 22, HFSC: Regulatory Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals—Part Two

While witnesses on the two panels—including the Treasury Secretary, Fed Chairman, and OTC, OCC, and FDIC leaders, and a state bank regulator—discussed the Obama Administration’s proposals, Committee discussion focused on two issues: GSEs Fannie Mae and Freddie Mac, and the proposed Consumer Financial Product Agency (CFPA). Partisan debate broke out over the history of Fannie/Freddie regulation—and which party is more to blame—and regarding the CFPA, with Democratic members supportive and Republican members opposed.

For more information, feel free to contact Mike Humphreys by reply e-mail or at 202-220-3014.