US Rep and House Financial Services Committee Chair Barney Frank gave the opening keynote at Compliance Week 2010, day 2. As usual, he was witty and insightful. His remarks covered the conceptual underpinnings of financial services regulatory reform. He then took questions from the group.
He started out by saying that we needed to move quickly to provide stability to the financial system. Healthcare created a delay, but they are now on track.
To those who are cynical about government and think that “big money” runs politics, he said that the bills are the “defining counter example” of a bill that passed despite big money lobbying.
He noted that once the House passed their bill there was an assumption that the Senate would pass a watered down version, but the opposite happened–because the public was paying attention, it forced the Senate to pass a strong bill, the implication being that we should all be more vigilant about the process on Capitol Hill.
Bill should be passed before July 4, which is important for stability.
The outlines of the bill was described by Paulson in March of 2008 when he described the need for a way to dissolve non-bank financial institutions. As Frank put it, Palin’s “Death Panels” were discussed in the context of the wrong bill!
This bill will require that all financial services institutions will have to report their financial transactions to some regulator. If an entity becomes problematic, then the regulator can take action. The regulators will also have a mechanism to require enough capital for these entities to stay solvent. Although, as has been commented on the Baseline Scenario at http://bit.ly/bDddch, the amount of capital that would be required has not been defined, potentially to allow for alignment with rules in other countries.
Frank said that the real “problem was non-regulation”, pointing out that we did not have rules for credit default swaps, for instance. During the Q&A period, he used derivatives as another example of non-regulation. He said that under the bills, derivative transactions will have to be reported.
Matt Kelly, Compliance Week Editor, asked a question about international coordination. Frank pointed out that “nothing in the world is more mobile than capital” and that we should not legislate unilaterally without coordination with other countries.
Companies with market caps less than $70 million will likely be excepted from 404.
Addressing the concern of “unintended consequences,” Frank said that it was not an unintended consequence that companies may not be able to make as much money trading derivatives, as his vision for the financial services sector is that it exists to enable investment activity to grow the economy.
When asked by the regulatory reform bill is so broad, he pointed out that many of these issues are interrelated, concluding that “the ankle bone is [ultimately] connected to the shoulder bone.”