The chiefs of major agencies that are writing hundreds of rules mandated by Dodd-Frank told the panel at a hearing that they need more money to carry out the law, which was approved following the 2007-2009 financial crisis.
Regulators also gave some glimpses into their thinking on implementation of Dodd-Frank rules involving debit card fees and subjecting large financial firms to stricter oversight, as well as on dealing with the mortgage servicing scandal.
For investors and Wall Street, the Senate hearing represented another act in a long-running drama that analysts expect will lead to few, if any, changes in the Dodd-Frank reforms due to political gridlock ahead of the 2012 elections.
“Republicans will argue in favor of extending implementation of (Dodd-Frank) … but these are timing issues and won’t affect the substance of the rules,” said Brian Gardner, analyst at investment firm Keefe Bruyette & Woods.
From derivatives oversight to bank capitalization, the financial regulation issues being debated on Capitol Hill will also feature in a Paris meeting on Friday and Saturday of Group of 20 finance ministers and central bank chiefs.
With international coordination of post-crisis reforms still a serious challenge facing U.S. and EU policy-makers, Senator Richard Shelby urged a Dodd-Frank slow-down.
“Regulators must not compound the mistakes of Dodd-Frank by promulgating uninformed rules,” said Shelby, the committee’s top Republican member, at the hearing.
Republicans on the banking panel are putting additional pressure on regulators, such as the Federal Reserve and the Treasury over Dodd-Frank, sending letters raising questions about whether they are following federal rule-making procedures.
A failure to abide by these guidelines has in the past forced the Securities and Exchange Commission to backtrack on numerous rules.
Republicans and the financial industry could win delays in implementation, said Joseph Engelhard, analyst at advisory firm Capital Alpha Partners. “More time will be needed,” he said.
Democratic Senator Tim Johnson, replacing Christopher Dodd, presided over his first hearing as committee chairman.
Johnson pledged to defend “the letter and spirit” of the sprawling Dodd-Frank statute, though he cautioned that its global impact must be handled “with great care to avoid unintended consequences that could impair economic growth.”
HEAVY LOAD FOR REGULATORS
Dodd-Frank was written and passed by congressional Democrats and signed into law by President Barack Obama over the fierce opposition of Republicans and Wall Street.
With 2012 elections looming and campaign donations from the financial industry rolling in, Republicans are pressing to trim back Dodd-Frank at the funding and administrative levels, with legislative changes seen as unlikely to gain much traction.
House Republicans — pursuing dual goals of combating the federal deficit and undermining reforms that they continue to oppose — want to restrain financial regulators’ budgets.
The SEC is feeling the pain of budget constraints, delaying significant technology projects, said SEC Chairman Mary Schapiro.
Commodity Futures Trading Commission Chairman Gary Gensler said: “It’s a little bit daunting to ask for more money for this agency at this time, but I really do think this a good investment for the American public.”
Touching on a Dodd-Frank rule that restricts debit card fees, an issue of concern to banks and card groups such as Visa Inc, Federal Reserve Chairman Ben Bernanke told the panel a small-bank exemption from the fee may pose problems.
“It is possible the exemption will not be effective in the market place,” Bernanke said.
Going a step further, Federal Deposit Insurance Corp Chairman Sheila Bair urged more protection for small banks on the debit card fee issue. “I do think this is a real issue and could have an adverse impact,” she said.
BAIR ON SYSTEMIC DESIGNATION
Bair also offered some insight into her inclinations which non-bank financial companies, such as hedge funds and insurers, should be designated as systemically important firms that would be subject to tighter oversight by the Fed under Dodd-Frank.
Regulators are still deciding which firms should be tagged in this way and the criteria to be used in selecting them, other than the obvious measurement of sheer size.
“It is interconnectedness more than anything,” Bair said. “If you fail, what else happens? Who else gets hurt? … There will be some gray areas. At least in terms of resolution planning I would err on the side of inclusiveness.”
On another front, John Walsh, acting head of the Office of the Comptroller of the Currency, said regulators are closer to meting out punishments of mortgage servicers after an investigation found deficiencies with home foreclosures.
“We are getting to the point where we will be delivering documents to the banks and talking about civil … penalties,” Walsh told the banking committee.
Mortgage services that were reviewed included Bank of America, Citibank, JPMorgan, and Wells Fargo, among others.
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