Sep 30 2010
The ranking member of the Senate Banking Committee told the nation’s top financial officials Thursday that changes in the new financial regulation law are “inevitable.”
Republicans have not been shy about their dislike of the sweeping financial overhaul, But Alabama Sen. Richard Shelby’s definitive statements in a congressional hearing exploring the law’s future seemed like a firm warning to a Democratic Party they believe strong-armed the bill and likely will lose seats in this fall’s midterm elections.
“Under the current law, the responsibility rests largely with the regulators to avoid future difficulties,” Shelby said. “Congress, however, can continue to exercise its oversight authority by having hearings such as this one and also, when necessary, visit the law and make changes consistent with our findings and the demands of the electorate.”
“In this particular instance,” he added, “change is not only a good thing, I believe that it is inevitable.”
Federal Reserve Chairman Ben Bernanke, FDIC Chairwoman Sheila Bair, Securities and Exchange Commission Chairwoman Mary Shapiro, Deputy Treasury Secretary Neal Wolin and other administration officials, testified before the Senate Banking Committee on Thursday on the implementation of the regulatory reform law crafted in response to the 2008 global financial crisis.
The new law leaves much of the specific structuring to the federal financial regulatory agencies. And the top financial officials emphasized they’ll be as transparent as possible in moving “quickly” and “carefully” to write the new rules that will govern some of the most complicated spheres of the financial world.
“We are bringing full transparency to this process,” Wolin said. “As we write the new rules, we will be consulting a broad range of groups and individuals. And as we seek their input, the American people will be able to see who is at the table. Draft rules will be published. Everyone will be able to comment, and those comments will be publicly available.”
The opening testimonies of the government’s most influential economic voices included praise for each of their agencies. Sen. Bob Corker (R-Tenn.) even teased before beginning his questioning, “Nice to know everyone's playing nice with each other.”
Still, the hearing underscored what lawmakers believe will be one of the greatest challenges in implementing the new reforms. Because regulators will have a significant role in crafting the new rules regulating Wall Street and because those regulatory jurisdictions overlap under the bill, multiple agencies staffed by different personalities and with varied interests will have to collaborate in creating a new system of rules.
For instance, Shelby pointed to the hot-button issue of derivatives regulation and how it might be implemented.
Under the new law, the SEC and the Commodities Futures Trading Commission will jointly devise rules on derivatives. And “in doing so,” Shelby said, “the legislation intensifies the decades-long turf battle between the agencies.”
“This likely ensures that the final rules will be more about protecting bureaucratic fiefdoms than protecting the overall financial systems,” the senator said.
Later, Treasury’s Wolin noted that a “collaborative spirit” was necessary to successfully implementing the law, but that the independence of each of the government bodies would be preserved.
Some of the most intense questioning came when Corker asked Wolin about the controversial new Consumer Financial Protection Bureau and the even more controversial decision to circumvent, at least for now, Senate confirmation of President Barack Obama’s choice for director, Elizabeth Warren.
Republicans — especially Corker, who at one point last spring was the top GOP negotiator on the bill — have been highly critical of the CFPB, branding it as a vast overreach of governmental power. But lawmakers on both sides of the aisle, including Senate Banking Committee Chairman Chris Dodd (D-Conn.), were skeptical of Obama’s decision to name Warren as a special adviser to the CFPB instead of putting her nomination before the Senate.
Warren, who played a large role in writing the legislation establishing the bureau, will effectively serve as its head as Obama searches for a permanent director, which Wolin said could happen “soon.”
“The president obviously intends to nominate someone,” Wolin said, adding that the president is now reviewing candidates. “He hopes to be in a position to make a nomination in this role soon.”
No matter the outcome of this fall’s elections, Dodd said “there are going to be people trying to get rid of this bureau, and it’s going to be a lot easier to get rid of it if it hasn’t gotten up and gotten started and demonstrating the value and the importance of it.”
“It’s at risk, in my view, until we get someone in running the place and demonstrating what it can do and what kind of rules it’s going to develop,” he added.
Even though much remains up in the air about implementation of the new reforms, Dodd reiterated that regulators will now have the “tools” to prevent a future crisis.
“Mark my words: There will be another crisis. Greed and recklessness will rear their heads again,” Dodd said. “I can tell you with confidence that, when that day comes, we have provided regulators with the tools they need to see it coming and put a stop to it in time. But whether they will actually do so largely depends on the foundation laid by those of you before us here today.”