Regulators assure Congress on Wall St crackdown
By Kevin Drawbaugh and Christopher Doering
WASHINGTON (Reuters) - U.S. financial regulators, under pressure from a deeply divided Congress, pledged to follow through with a crackdown on Wall Street and the banking business, but to take enough time to get it right.
Members of a new inter-agency council, set up under 2010's Dodd-Frank reforms, told the U.S. Senate Banking Committee on Thursday that they will take more time to figure out how to select banks, insurers and hedge funds for extra-strict government policing.
Republicans have pushed to delay and weaken Dodd-Frank, concerned that a regulatory over-reach will restrict credit and harm U.S. competitiveness. But Democrats have defended the need to prevent the excessive risk-taking linked to the 2007-2009 financial crisis, setting the tone for a debate that will continue up to and beyond the 2012 presidential election.
With an uneven economic recovery under way, and a massive federal deficit problem looming, financial regulation is being tightened in the United States. Regulatory agencies are steadily implementing Dodd-Frank and analysts expect no immediate major change in course to result from Republican efforts.
Still, for investors, the conflict on Capitol Hill translates into uncertainty, particularly for big bank stocks. If Republicans next year win control of the Senate or the White House, Dodd-Frank could be dismantled, analysts said.
The inter-agency Financial Stability Oversight Council (FSOC) will extend its public comment period on criteria for choosing systemically important financial institutions (SIFIs) to be subject to stricter rules, regulators told the Senate panel.
Republican Senator Richard Shelby said markets are nervous about the SIFI rules. "Firms are unsure which types of activities will cause them to be subject to systemic risk regulation. The burden is on our regulators to demonstrate that they know exactly what they are doing before they begin to implement this new form of regulation," he said.
SIFIs are being singled out for intensive oversight by the Federal Reserve, along with higher capital and liquidity requirements.
Bank holding companies with assets of $50 billion or more are automatically included as SIFIs. Wall Street giants such as Goldman Sachs and JPMorgan Chase will likely be swept in. Major insurance companies, hedge funds and other non-bank firms are trying to avoid the SIFI tag.
House Republicans are backing a bill to curb the power and independence of the new, Dodd-Frank-mandated Consumer Financial Protection Bureau (CFPB). It is set to open its doors in July to protect consumers from abusive mortgages and credit cards.
Like much of the Republican anti-Dodd-Frank agenda, the CFPB bill was expected to stall in the Democratic-controlled Senate, with President Barack Obama's veto pen another huge hurdle.
"Opponents of reform are just trying to cripple an agency they never supported in the first place," said Pamela Banks, senior policy counsel for Consumers Union, an advocacy group.
The CFPB, like Dodd-Frank overall, was a response to the 2007-2009 financial crisis that devastated world markets and the U.S. economy, dragging the nation into a deep recession and leading to massive taxpayer bailouts of banks.
(Additional reporting by Sarah N. Lynch, Rachelle Younglai, Dave Clarke and Pedro da Costa. Writing by Kevin Drawbaugh; Editing by Tim Dobbyn)