JOHNSON STATEMENT ON INTERNATIONAL HARMONIZATION OF WALL STREET REFORM
March 22, 2012
WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing on the international harmonization of Wall Street reform. The Committee heard from officials from the Treasury, Federal Reserve, SEC, FDIC, OCC, and CFTC, and discussed topics including orderly liquidation authority, derivatives regulations, and the Volcker Rule.
Below is Chairman Johnson’s statement as prepared for delivery:
“I thank our witnesses for joining us. Today, this Committee continues its oversight of the implementation of the Wall Street Reform Act. Since our last Wall Street Reform hearing in December, there have been significant developments on implementation, including new proposed and final rules on areas critical to strengthening market oversight and stability.
“Among the many lessons apparent from the recent financial crisis is that the financial system is truly global, and that risks and regulations in one country can have significant effects on institutions and markets world-wide. Last month, we held a hearing to examine the European debt crisis and any potential spillover effects in the U.S. Today’s hearing will focus on the possible effects of our new financial rules on international markets and on international competitiveness for U.S. institutions.
“Some of the most complex and critical rulemakings of the Wall Street Reform Act are the ones with international implications that we will focus on today. The FDIC’s new orderly liquidation authority, as well as the creation of living wills and the “SIFI” designation, will together help ensure that large, multinational, interconnected financial institutions may be quickly wound down in times of stress, without exposing taxpayers to losses or threatening the financial system. In order to fully implement these important rules, our agencies must work closely with their international partners to make cross-border resolutions orderly and coordinated, so that global firms will no longer be “too big to fail.” I look forward to the agencies providing an update on efforts to harmonize regulations.
“The Volcker Rule also raises a number of complicated issues with potential international effects. It is important to carefully implement the rule’s prohibitions on prop trading and fund investments in a manner that does not impair market making, underwriting, client services, hedging and other “permitted activities” so important to our economy. Market participants need greater clarity about the conformance period and what will be required of them starting this July. I look forward to hearing the witnesses’ comments on these issues, as well as their views on the rule’s potential impact on capital markets, governments and institutions around the world.
“Additionally, international coordination is key to bringing greater stability and transparency to the $700 trillion global derivatives market. Ideally, the rules the CFTC, SEC and prudential regulators are working to finalize should have no substantive degree of variance, and only differ for kinds of firms and transactions the rules are being applied to. In addition, global harmonization on rules relating to margin, capital and clearing will be essential to promoting financial stability, effective oversight, and competitiveness of U.S. companies doing business abroad.
“I welcome the regulators’ updates on these developments and on the next steps for strengthening the global financial system.
“While our economy is starting to show signs of recovery from the financial crisis, we must remain vigilant in ensuring that Wall Street Reform is implemented thoughtfully and with full consideration of international implications. The Wall Street Reform law gave our regulators the tools to address global threats to financial stability, as well as oversight over new, uncharted areas of the international financial markets. We’ve already seen good progress in the recently announced stress tests, showing U.S. banks in a much stronger position than they were before the crisis. But until the new rules are fully implemented, our financial system remains vulnerable to threats – both from within the United States and from abroad.
“I believe our Committee’s robust oversight of Wall Street Reform has reaffirmed the need for, and improved the implementation of, this important legislation. As I have said before, I am open to the idea of improving Wall Street Reform by making technical corrections and fixing unintended consequences, but in today's political environment there will need to be broad bipartisan support to get anything approved.”