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Thursday, March 22, 2012

Senate Banking Committee Hearing on International Implications of Dodd-Frank Reform

The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing today at 9:45 a.m. entitled “International Harmonization of the Wall Street Reform: Orderly Liquidation, Derivates, and the Volcker Rule.

Federal Reserve Governor Daniel Tarullo will testify before the Committee regarding the implementation of the Dodd-Frank Act and its international implications.

Tarullo will focus on issues “that have significant international implications:” regulation of systemically important financial institutions (SIFIs), reform of the over-the-counter (OTC) derivatives market, and a number of discrete issues that have arisen as the Dodd-Frank Act has been implemented.

He stresses the importance of “implementing [regulations] consistently across jurisdictional boundaries” in order to improve stability and points that regulations not adopted international may have adverse effects on US institutions.
These areas of U.S.-only regulatory reform can present particular challenges in implementation, both in terms of the potential impact that they may have on the ability of U.S. financial institutions to compete abroad and the extent to which they may affect the activities of foreign financial institutions in U.S. markets and with U.S. counterparties.

Tarullo states rules such as the Volcker Rule and the swaps “push-out” requirement in section 716 of the Dodd-Frank Act appear unlikely to be accepted internationally, suggesting regulators will need to carefully considered the broader international implications of these rules.

Read Tarullo’s full testimony.

CFTC’s director of International Affairs Jacqueline Mesa will also give testimony to the Committee giving an overview of global commitments and initiatives for over-the-counter (“OTC”) derivatives reform, an update on Dodd-Frank Act implementation efforts at the CFTC, and an overview of coordination efforts with international regulators in regulating the swaps market.

Mesa mentioned the CFTC has recognized for example that swaps business currently flows across national borders and jurisdictions, which has been raised as an issue in how the rules might be applied. The Volcker Rule is another such rule with similar issues raised.

Read Mesa’s full testimony.

Treasury Under Secretary Lael Brainard will also testify before the Committee regarding the Treasury’s international financial reform agenda. Brainard also focuses on the importance of implementing consistent regulations across international boundaries.
It is essential for banks across the world to measure risk-weighted assets similarly, to ensure that markets and investors can be confident that the capital adequacy ratios stated by banks are consistent across borders.
We must ensure that national authorities continue to coordinate closely to align implementation.

Read Brainard’s full testimony.

Read more about the Committee hearing.

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