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Senate Banking Oversees Financial Stability, Data Security

By    |   Thursday, 13 Feb 2014 06:17 PM

On Feb. 6, the Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a hearing titled "Oversight of Financial Stability and Data Security." Witnesses represented the same regulators who testified the previous day before the House Financial Services Committee, plus a witness from the Treasury Department. The scope of the hearing was expanded to include data security, which the committee appears to believe holds great promise as a subject of future legislation.

Although both Johnson and ranking Republican Michael Crapo, R-Idaho, used their opening statements to repeat the point made repeatedly at the House Financial Services Committee hearing about the anguish small bankers are suffering if they have issued trust preferred securities (TruPS) that need to be marked down under accounting rules, senators found other questions to ask, and there were moments of intrigue and even drama.

Johnson vowed to test each of the remaining Dodd-Frank rules according to whether they would enhance financial stability. In addition to the Volcker rule, Crapo lamented the effect of swap rules on end users, who are supposed to be exempt, and the so-called "pushout" rule that calls for banks to move their riskiest activities out of banks and into separately capitalized subsidiaries, a principle banks have fought since it was first adopted as part of the Gramm-Leach-Bliley Act of 1999.

A subtle but instructive observation is that Mary Miller, under secretary of the Treasury for Domestic Finance, who senators expected to provide leadership and insight on the views of the administration on financial regulation, showed a marked tendency to defer to the regulators. Her moment of drama came when Sherrod Brown, D-Ohio, invited any regulator who did not agree with a statement she had made that the doctrine of "too big to fail" has not yet ended to speak up, but they remained silent.

Two of the bank regulators on the panel diverged when Sen. Robert Menendez, D-N.J., asked about press reports that banks have been moving risky activities into nonbank entities offshore in order to reduce their apparent risk and obtain more lenient capital treatment.

The Office of the Comptroller of the Currency's Thomas Curry proudly asserted that his agency makes sure the risk is really transferred before it grants the capital treatment.

In contrast, FDIC Chairman Martin Gruenberg said the FDIC does not approve such transactions. (The latter is the correct answer for a credible bank regulator.)

In response to a question from Richard Shelby, R-Ala., about the capital condition of the banks, the regulators qualified their assurances. Fed Governor Daniel Tarullo spoke of focusing on the reliance of the largest banks on short-term wholesale funding, and Gruenberg said, "We're getting there," and called it a "work in progress."

The most dramatic moment came when Elizabeth Warren, D-Mass., challenged the regulators on press reports that JPMorgan CEO Jamie Dimon received a 75 percent increase in compensation as a reward for his management of $17 billion in settlements with federal regulators. She chided them for agreeing to terms that practically provided an incentive for banks to break the law.

(Archived video and witness statements can be found here.)

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Robert-Feinberg
On Feb. 6, the Senate Banking Committee held a hearing titled "Oversight of Financial Stability and Data Security." Witnesses represented the same regulators who testified the previous day before the House Financial Services Committee, plus a witness from the Treasury Department.
Senate,bank,regulator,risk
517
2014-17-13
Thursday, 13 Feb 2014 06:17 PM
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