Regulators implementing the Dodd-Frank Act face questions from U.S. lawmakers today over progress on required new rules, including provisions of a proposal to bar Wall Street firms from proprietary trading.
The Treasury Department, Federal Reserve and other financial regulators have spent more than a year drafting rules required by the law, which also includes new regulations for the $708 trillion global swaps market, tools to wind down failing financial firms and enhanced supervisory powers over the largest and most interconnected companies.
“The ultimate shape of both individual requirements and overall reform is becoming clearer by the week,” Neal Wolin, the deputy Treasury secretary, said in remarks prepared for the Senate Banking Committee hearing. “Increasingly, financial firms are in a position to adjust their business models in anticipation of final rules.”
Regulators are working on hundreds of rules required by the law. Some agencies are struggling to meet deadlines or postponing rulemakings until 2012 amid budget cuts and strained resources.
Securities and Exchange Commission Chairman Mary Schapiro argued that her agency won’t be able to do its job without a bigger budget in 2012.
“If the SEC does not receive additional resources, many of the issues highlighted by the financial crisis and which the Dodd-Frank Act seeks to fix will not be adequately addressed,” Schapiro said in prepared testimony, saying her agency “desperately” needs new specialized staff and technology, including a new rule to collect trading data from hedge funds.
The new Dodd-Frank duties “are so significant that they cannot be achieved solely by wringing efficiencies out of the existing budget,” Schapiro planned to say, according to her prepared remarks.
The reach and scope of the final Dodd-Frank rules will affect financial firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. Both have already shuttered proprietary trading desks in advance of a new rule aimed at banning the practice in banks.
A draft of the Volcker rule, named for former Federal Reserve Chairman Paul Volcker, released by regulators in October has drawn criticism from both Democratic and Republican lawmakers as well as banks. Some say it is too complex and lacks clarity, others that it is either too tough or too easy on Wall Street.
The proposal, written by four regulatory agencies and currently open for public comment, would ban banks from making trades for their own accounts while allowing them to continue short-term trades for hedging or market-making. Banks also would face limits on investments in hedge funds and private-equity funds.
A coalition of U.S. and international banking trade groups wrote to regulators on Nov. 30 requesting a delay in the comment period for the draft version of the rule, citing members -- which include Bank of America Corp. and Citigroup Inc. -- that are still trying to understand the proposal.
“Our members are deeply concerned about the potential impact of the proposal on capital formation, markets and liquidity for a range of asset classes and on the safety and soundness of banking entities and the businesses in which they engage,” the Financial Services Forum, Securities Industry and Financial Markets Association, Financial Services Roundtable, American Bankers Association and Institute of International Bankers wrote in the letter.
The Volcker proposal is “the result of months of intensive study and analysis by the agencies” of the law, John Walsh, acting comptroller of the currency, said in remarks prepared for the hearing. The public comment period closes Jan. 13.
The Federal Deposit Insurance Corp., which was given increased responsibilities to resolve failing financial firms deemed a systemic risk, is working with foreign regulators to coordinate the resolution process for firms with operations around the world, Martin Gruenberg, the agency’s acting chairman, planned to tell lawmakers, according to his prepared testimony.
“In the wake of the financial crisis, there has been an increased international awareness of the need for greater inter- jurisdictional cooperation in the planning for resolution of specific cross-border institutions,” said Gruenberg, who has been nominated by President Barack Obama to serve as FDIC chairman.