Dodd Frank Act Senate Meeting – US Regulators Report Significant Progress

Yesterday’s meeting between US Regulators and the Senate in order to discuss further aspects with regard to the implementation of

Yesterday’s meeting between US Regulators and the Senate in order to discuss further aspects with regard to the implementation of the Dodd-Frank Act, U.S. regulators described the progress as anywhere between good and “tremendous” without, however, providing a specific timeline on pending regulations such as the Volcker Rule, which specifies trading restrictions placed on financial institutions.

Former Chairman of Federal Reserve
Paul Volcker

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The rule became a proposed motion within the Dodd Frank Act and was originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers

“Significant progress has been made in implementing these reforms,” Federal Deposit Insurance Corporation Chairman Martin Gruenberg explained to the Senate Banking Committee in prepared testimony.

Securities and Exchange Commission Chairman Elisse Walter in her testimony qualified the progress as “tremendous.”

Ms Walker also explained that “significant effort intended to increase transparency, mitigate risk, protect against market abuse in security-based swap markets, improve the oversight of credit rating agencies and hedge fund and other private fund advisers, and develop a better understanding of the systemic risk presented by large private funds.”

Amid calls to simplify or even re-propose certain rules such as the Volcker Rule – deemed overly complex by the financial industry, U.S. Treasury Under Secretary Mary Miller agreed the Dodd-Frank regulatory project is the most challenging in 80 years.

However, “While the demand for simple rules has a superficial appeal,” she told the committee, “simple rules do not suffice to address the nuances of a complex financial system.” She warned that, “We cannot afford to succumb to complacency now as the financial markets and economy slowly continue to recover.” The stabilization so far, she said, “is because of the reforms that we are putting in place, not in spite of them.”

Regulators also updated Congress in their particular areas.

At the FDIC, the Deposit Insurance Fund reserve ratio, Gruenberg said, “is recovering at a pace that remains on track under the (Restoration) Plan.”

He also said that the expiration of the Transaction Guarantee program providing unlimited coverage for non interest-bearing accounts did not cause any disruption.

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“Thus far, the transition away from this emergency program has proceeded smoothly,” he said.

Gruenberg does not provide specifics on other areas, including the so-called living wills resolution plans that systemically important financial institutions (SIFIs) are required to prepare — implying that progress here is continuing.

“In 2013, the eleven firms that submitted initial plans in 2012 will be expected to refine and clarify their submissions,” he said. “The agencies expect the refined plans to focus on key issues and obstacles to an orderly resolution in bankruptcy including global cooperation and the risk of ring-fencing or other precipitous actions.”

He also underlined cooperation with international regulators, notably in Europe.

“In addition to the close working relationship with the U.K., the FDIC and the European Commission (E.C.) have agreed to establish a joint Working Group comprised of senior staff to discuss resolution and deposit guarantee issues common to our respective jurisdictions” he said.

“The Working Group will convene twice a year, once in Washington, once in Brussels, with less formal communications continuing in between. The first of these meetings will take place later this month. We expect that these meetings will enhance close coordination on resolution related matters between the FDIC and the E.C., as well as European Union Member States.”

The SEC’s plate is also full, and when it comes to rating agencies, Walter assured that her staff is “actively developing” a study on rating agencies independence.

The SEC also continues to address the cross-border application of the derivatives reform, she said.

“With very limited exceptions, the Commission has not addressed the application of the security-based swap provisions of Title VII in the cross-border context in its proposed or final rules,” Walter said. “Rather than addressing these issues in a piecemeal fashion through each of the various substantive rule makings implementing Title VII, we instead plan to address them holistically in a single proposing release.”

“The cross-border release will involve notice-and-comment rule making, not just interpretive guidance,” she added.

An ongoing process, this series of government meetings and resolutions on the matters relating to full coverage of the Dodd Frank Wall Street Reform Act are concurrent with the global effort exercised in relation to tightening up the legal framework for the forex industry internationally which has been a focus over the last year or so.

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