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Hearing of the Senate Banking, Housing and Urban Affairs Committee - International Harmonization of Wall Street Reform: Orderly Liquidation, Derivatives, and the Volcker Rule

Statement

By:
Date:
Location: Washington, DC

U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing and Urban Affairs, today made the following statement at a hearing on regulators' attempts to harmonize Wall Street reform with international financial regulations.

"Thank you, Mr. Chairman.

"Today, our financial regulators will update us on their efforts to harmonize the requirements of the Dodd-Frank Act with the financial regulations of other countries.

"This is an important issue due to the global nature of modern financial markets. Today, nearly all major U.S. financial institutions have operations overseas, and most major foreign financial institutions have operations in the U.S.

"The globalization of finance has generally been a positive development. It helps firms raise capital at lower rates and more effectively manage their risks. This in turn helps financial institutions lend more cheaply to businesses and consumers.

"Yet, the globalization of finance means that regulators need to be mindful of how their regulations interact with the regulations of other countries. Poorly conceived laws or ineffective coordination by regulators can easily undermine the efficiency of the international economic system.

"Although such regulatory failures often go largely unnoticed, the consequences can be significant. Their impacts show up in the form of higher interest rates and fees for consumers and higher operating costs for businesses. Ultimately, higher prices reduce economic growth and job creation. We only need to recall how poor international economic coordination in the 1930s, stemming from the Smoot-Hawley Act and other laws, worsened the Great Depression.

"Accordingly, it is critical that Congress and our financial regulators make sure that Dodd-Frank does not worsen our already troubled economy by unnecessarily impeding the international financial system.

"It is worth noting that, two years ago, when Dodd-Frank was passed, the thought that Dodd-Frank would create any international coordination problems was not on the minds of the Act's supporters. Rather, we were told that the rest of the world would follow our lead and adopt legislation similar to Dodd-Frank. Of course, this has not happened.

"To the contrary, foreign regulators and governments have publicly expressed serious concerns about Dodd-Frank. Canada, Germany, Japan, the United Kingdom, as well as the European Union, have all identified profound problems with the implementation of Dodd-Frank. These problems include reducing the liquidity of their government bond markets and the discriminatory treatment of foreign firms.

"In addition, many market participants have expressed concerns about the extra-territorial reach of Dodd-Frank. They justifiably fear that they will find themselves caught in a regulatory trap as many Dodd-Frank rules may conflict with theirs.

"These concerns have been worsened by the fact that our financial regulators have already missed 70% of the Dodd-Frank rulemaking deadlines. As a consequence, two years after the passage of Dodd-Frank, market participants are still unclear if and how Dodd-Frank rules will apply to their international banking operations. Moreover, the risk of having to comply with Dodd-Frank's costly regulations is causing many firms to reconsider doing business in the United States.

"The United States should be the market of choice because it is the most sophisticated and modern. It should not be the market firms desperately seek to avoid due to its costly and heavy-handed regulatory approach. Looking forward, it is my hope that our regulators will take the time to ensure that the Dodd-Frank rulemakings have as few unintended consequences as possible.

"Accordingly, I hope to hear today how our financial regulators are working with their foreign counterparts to address legitimate concerns about Dodd-Frank. In particular, I hope to hear how our regulators are working to address the major discrepancies that exist between U.S. and international derivatives rules, especially with respect to margin and capital requirements.

"Also, I also hope to learn today what specific steps regulators have taken to ensure that the FDIC's new orderly liquidation authority can effectively wind down a large international firm. As we saw with the failure of Lehman and, more recently, MF Global, the collapse of an international financial firm can leave customer assets frozen in several countries, making resolution of a firm substantially more difficult.

"Hopefully, the next time a major international financial institution fails, regulators will have a far more efficient and effective response than the CFTC's response to MF Global. Unfortunately, in the nearly two years since the passage of Dodd-Frank, regulators have done little to instill confidence that Dodd-Frank will do anything other than increase the cost of doing business in America."

"Thank you Mr. Chairman."


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