Apr 18 2011

Shelby: Dodd-Frank Hampers Regulators

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing to examine the implementation of the Dodd-Frank Act’s new derivatives regulatory scheme.

Excerpts of Shelby’s statement are immediately below in bold, followed by the full text of his prepared remarks:

"There is particular need for oversight in this area because Dodd-Frank has needlessly created widespread uncertainty about the regulation of derivatives and threatens to impose huge costs on Main Street businesses as well as on our overall economy.

“Regulators are hastily proposing rules to meet extremely short deadlines without fully considering either their economic impact or how they interact with the rules proposed by other regulators.

“Meanwhile, market participants are scrambling to understand how the numerous and complicated rules will impact their businesses.

“This process if a direct result of the poorly conceived regulatory structure created by Dodd-Frank.

“Our regulators have been forced to undertake additional rulemaking in an effort to correct the inconsistencies and errors in the Dodd-Frank Act.

“Make no mistake, the unprecedented scale and scope of agency rulemakings mandated by the Dodd-Frank derivatives title, make it impossible for regulators to engage in deliberative and rational rulemaking and still meet the unrealistic deadlines imposed by the Act.” 

 

OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

Committee on Banking, Housing, and Urban Affairs

April 12, 2011

“Thank you Mr. Chairman.

“Today, the Committee will examine the implementation of the Dodd-Frank Act’s new derivatives regulatory scheme.

“There is particular need for oversight in this area because Dodd-Frank has needlessly created widespread uncertainty about the regulation of derivatives and threatens to impose huge costs on Main Street businesses as well as on our overall economy.

“The irony is that the proponents of Dodd-Frank told us that the new law would bring certainty to the market and stimulate economic growth. 

“Instead, Dodd-Frank has set in motion a massive regulatory rule-writing process that is on an unrealistic timetable.

“Predictably, the result has been regulatory confusion and market uncertainty.

“Regulators are hastily proposing rules to meet extremely short deadlines without fully considering either their economic impact or how they interact with the rules proposed by other regulators.

“Meanwhile, market participants are scrambling to understand how the numerous and complicated rules will impact their businesses.  In fact, they have filed thousands of comments on the proposed rules. 

“The comments reveal the gravity of their concerns as well as their confusion about how the rules will work in practice.

“This process is a direct result of the poorly conceived regulatory structure created by Dodd-Frank.

“Although numerous studies have recommended consolidating our financial regulators, Dodd-Frank actually dispersed authority for derivatives regulation.

“Unfortunately, the danger of having multiple regulators involved is a process marked by disorder and confusion.

“For example, although regulators have proposed numerous new rules for derivatives, the CFTC and the SEC have still not proposed rules that clarify the definition of a swap.  This omission alone has had serious ramifications for our markets and the implementation process.

“After all, if regulators do not know what the definition of a swap is, how can they finalize their own rules governing “swap dealers” or “major swap participants” since it is unclear exactly who is covered by these rules?

“And, if market participants do not know if they will be classified as a “swap dealer” or a “major swap participant,” how can they be expected to know when to submit comments?

“This is just one example of how Dodd-Frank has created a confused derivatives rulemaking process that is not proceeding in a logical order and creates significant uncertainty in our markets.

“The regulatory process is further hampered by the fact that the Dodd-Frank Act was so poorly drafted.

“Here is a just one simple example that illustrates my point.  One of the first Dodd-Frank rules promulgated by the CFTC was an interim final rule for “Reporting Pre-Enactment Swap Transactions.”

“The stated purpose of the rule is to reconcile two conflicting Dodd-Frank provisions, Sections 723 and 729. 

“The CFTC rule proposal specifically states “The inconsistencies between these two reporting provisions must be reconciled in order to eliminate uncertainty with respect to the actual reporting requirements for pre-enactment swaps.”

“In other words, our regulators have been forced to undertake additional rulemaking in an effort to correct the inconsistencies and errors in the Dodd-Frank Act. 

“Although I’m not sure how rules can alter statutory requirements, it is clear that Dodd-Frank has some fundamental flaws and should be revisited.

“Today, I look forward to hearing how the regulators plan to improve this broken regulatory process, particularly how they will consider and incorporate comments from the public.

“Make no mistake, the unprecedented scale and scope of agency rulemakings mandated by the Dodd-Frank derivatives title, make it impossible for regulators to engage in deliberative and rational rulemaking and still meet the unrealistic deadlines imposed by the Act.

“I am also concerned that the regulators are not fully considering the costs and benefits of their rules and the effects those rules could have on our markets and job creation.

“As the American economy continues to struggle, this may be the most important facet of the current regulatory process.  It must not be overlooked.

“Thank you Mr. Chairman.”