Dec 06 2011

Shelby: We Have Sacrificed the Voice of the People on the Altar of Regulatory Independence

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 on Dodd-Frank oversight.


Statement of Senator Richard C. Shelby

Committee on Banking, Housing and Urban Affairs

December 6, 2011


            “Thank you, Mr. Chairman.

            “Today, our financial regulators will give us a progress report on their implementation of the Dodd-Frank Act.  When Dodd-Frank was passed, the American people were promised that financial regulators would have all the tools and powers they need to properly regulate financial institutions and to protect investors and consumers.  Unfortunately for the American people, more powers and more tools cannot help when regulators fail to do their jobs.

            “This lesson is vividly demonstrated by the Commodity Futures Trading Commission’s failed regulation of MF Global.  The CFTC’s most basic responsibility is to ensure that customers are protected when a firm fails.  Yet, 37 days have passed since MF Global filed for bankruptcy and more than $1 billion in customer funds are still missing.  It is unclear how much longer customers must wait while a bewildered CFTC searches for their money. 

            “Holding the CFTC accountable for its regulatory failures, however, will not be an easy task.  Already Chairman Gensler has been evading questions about his role in the regulation of MF Global.  Prior to the firm’s bankruptcy, it appears that Chairman Gensler had contacts with MF Global and its CEO John Corzine concerning the CFTC’s regulation of the firm.  But when he was called to account for the firm’s bankruptcy and the missing customer funds, Chairman Gensler decided that he needed to recuse himself from matters dealing with MF Global.  The victims of MF Global deserve better.

            “Accordingly, I have asked the CFTC’s Inspector General to examine the Commissions’ oversight and regulation of MF Global.  I have also asked him to determine whether Chairman Gensler’s recusal was appropriate and whether Mr. Gensler should have recused himself much earlier in the process.  In the absence of a Committee investigation, the IG’s examination will help determine whether MF Global received special consideration by the CFTC.

            “Although the CFTC’s failures have received the most attention, our other financial regulators have had their own difficulties.  Over the last year, it appears that the Securities and Exchange Commission has been operating as a ‘no doc regulator’ in its rulemakings and enforcement actions.  First, the SEC’s proxy access rule was struck down as ‘arbitrary and capricious’ by the DC Circuit because the SEC failed to properly conduct economic analysis before issuing the rule.  Then just last week, a Federal court refused to endorse a major SEC settlement because the SEC failed to provide sufficient evidence that the settlement was in the public interest.

            “Meanwhile, banking regulators have struggled to effectively implement several key rules.  Most importantly, the proposal to implement the Volcker rule has been marred by misconduct, ambiguity, and interagency discord.  Drafts of the proposed rule were leaked to the press, prompting Inspectors General inquiries into whether agency personnel violated confidentiality rules.  When regulators finally issued a proposed rule, it came in the form of a 298-page concept proposal with over 1,300 questions.

            “We all agree that banks should not be allowed to gamble with taxpayer guaranteed deposits.  Yet, the ambiguity in the proposed rule threatens to make compliance costly and difficult, especially for small banks.  Further, the CFTC has not signed on to the Volcker proposal, and may opt to draft its own rule.  The Financial Stability Oversight Council was established to ensure that regulators properly coordinate their rulemakings.  I hope to hear today why the Council was unable to secure agreement on the Volcker rule.

            “More than a year has passed since the enactment of Dodd-Frank and it is now evident that it has not lived up to its promises.  In fact, it has exacerbated many problems by granting large bureaucracies greater powers while further insulating them from Congressional oversight.

            “For much too long, we have sacrificed the voice of the people on the altar of regulatory independence.  What we are left with are massive bureaucracies, insulated from the people they are supposed to be protecting and unaccountable for their actions.

            “This week the President is calling for the confirmation of the Director of the Bureau of Consumer Financial Protection.  This massive new bureaucracy was designed by the drafters of Dodd-Frank to be virtually unaccountable to the American people.  Before we spend hundreds of millions of dollars on a new federal government agency, we should ensure that it can be held accountable for its actions.  Therefore, I and 44 of my Republican colleagues have informed the President that we will not consider the nomination of anyone to be the first Director until the Bureau is made accountable to the American people.

            “The authors of Dodd-Frank believed that more government was better.  More regulators, more rules, more regulations, and more bureaucrats with more independence empowered to make choices for others.  We were told that we could expect great things.  The past year has shown, however, that little has changed.

            “Dodd-Frank contains many flaws.  But, the failure to improve the accountability of our financial regulators may be its greatest short-coming.

            “Thank you, Mr. Chairman.”