WASHINGTON (MNI) – The following is the text of testimony by
Federal Reserve Chairman Ben Bernanke on implementing the Dodd-Frank Act
to be delivered to the Senate Banking Committee Thursday:
Chairman Dodd, Ranking Member Shelby, and other members of the
Committee, thank you for the opportunity to testify about the Federal
Reserve’s implementation of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act).
In the years leading up to the recent financial crisis, the global
regulatory framework did not effectively keep pace with the profound
changes in the financial system. The Dodd-Frank Act addresses critical
gaps and weaknesses of the U.S. regulatory framework, many of which were
revealed by the crisis. The Federal Reserve is committed to working with
the other financial regulatory agencies to effectively implement and
execute the act, while also developing complementary improvements to the
financial regulatory framework.
The act gives the Federal Reserve several crucial new
responsibilities. These responsibilities include being part of the new
Financial Stability Oversight Council, supervision of nonbank financial
firms that are designated as systemically important by the council,
supervision of thrift holding companies, and the development of enhanced
prudential standards for large bank holding companies and systemically
important nonbank financial firms designated by the council (including
capital, liquidity, stress test, and living will requirements). In
addition, the Federal Reserve has or shares important rulemaking
authority for implementing the so-called Volcker Rule restrictions on
proprietary trading and private fund activities of banking firms, credit
risk retention requirements for securitizations, and restrictions on
interchange fees for debit cards, among other provisions.
All told, the act requires the Federal Reserve to complete more
than 50 rulemakings and sets of formal guidelines, as well as a number
of studies and reports, many within a relatively short period. We have
also been assigned formal responsibilities to consult and collaborate
with other agencies on a substantial number of additional rules,
provisions, and studies. Overall, we have identified approximately 250
projects associated with implementing the act. To ensure that we meet
our obligations in a timely manner, we are drawing on expertise and
resources from across the Federal Reserve System in areas such as
banking supervision, economic research, financial markets, consumer
protection, payments, and legal analysis. We have created a senior staff
position to coordinate our efforts and have developed project-reporting
and tracking tools to facilitate management and oversight of all of our
implementation responsibilities.
The Federal Reserve is committed to its long-standing practice of
ensuring that all its rulemakings be conducted in a fair, open, and
transparent manner. Accordingly, we are disclosing on our public website
summaries of all communications with members of the public–including
banks, trade associations, consumer groups, and academics–regarding
matters subject to a proposed or potential future rulemaking under the
act.
In addition to our own rulemakings and studies, we have been
providing technical and policy advice to the Treasury Department as it
works to establish the oversight council and the related Office of
Financial Research. We are working with the Treasury to develop the
council’s organizational documents and structure. We are also assisting
the council with the construction of its framework for identifying
systemically important nonbank financial firms and financial market
utilities, as well as with its required studies on the proprietary
trading and private fund activities of banking firms and on
financial-sector concentration limits.
Additionally, work is well under way to transfer the Federal
Reserve’s consumer protection responsibilities specified in the act to
the new Bureau of Consumer Financial Protection. A transition team at
the Board, headed by Governor Duke, is working closely with Treasury
staff responsible for setting up the new agency. We have established the
operating accounts and initial funding for the bureau, and we have
provided the Treasury detailed have identified approximately 250
projects associated with implementing the act. To ensure that we meet
our obligations in a timely manner, we are drawing on expertise and
resources from across the Federal Reserve System in areas such as
banking supervision, economic research, financial markets, consumer
protection, payments, and legal analysis. We have created a senior staff
position to coordinate our efforts and have developed project-reporting
and tracking tools to facilitate management and oversight of all of our
implementation responsibilities.
The Federal Reserve is committed to its long-standing practice of
ensuring that all its rulemakings be conducted in a fair, open, and
transparent manner. Accordingly, we are disclosing on our public website
summaries of all communications with members of the public–including
banks, trade associations, consumer groups, and academics–regarding
matters subject to a proposed or potential future rulemaking under the
act.
In addition to our own rulemakings and studies, we have been
providing technical and policy advice to the Treasury Department as it
works to establish the oversight council and the related Office of
Financial Research. We are working with the Treasury to develop the
council’s organizational documents and structure. We are also assisting
the council with the construction of its framework for identifying
systemically important nonbank financial firms and financial market
utilities, as well as with its required studies on the proprietary
trading and private fund activities of banking firms and on
financial-sector concentration limits.
Additionally, work is well under way to transfer the Federal
Reserve’s consumer protection responsibilities specified in the act to
the new Bureau of Consumer Financial Protection. A transition team at
the Board, headed by Governor Duke, is working closely with Treasury
staff responsible for setting up the new agency. We have established the
operating accounts and initial funding for the bureau, and we have
provided the Treasury detailed Program (popularly known as the bank
stress tests) demonstrated the feasibility and benefits of employing
such a perspective. The stress tests also showed how much the
supervision of systemically important institutions can benefit from
simultaneous horizontal evaluations of the practices and portfolios of a
number of individual firms and from employment of robust quantitative
assessment tools. Building on that experience, we have reoriented our
supervision of the largest, most complex banking firms to include a
quantitative surveillance mechanism and to make greater use of the broad
range of skills of the Federal Reserve staff.
The stress tests also showed how much the supervision of
systemically important institutions can benefit from simultaneous
horizontal evaluations of the practices and portfolios of a number of
individual firms and from employment of robust quantitative assessment
tools. Building on that experience, we have reoriented our supervision
of the largest, most complex banking firms to include a quantitative
surveillance mechanism and to make greater use of the broad range of
skills of the Federal Reserve staff.
To conclude, the Dodd-Frank Act is an important step forward for
financial regulation in the United States, and it is essential that the
act be carried out expeditiously and effectively. The Federal Reserve
will work closely with our fellow regulators, the Congress, and the
Administration to ensure that the law is implemented in a manner that
best protects the stability of our financial system and strengthens the
U.S. economy.
** Market News International Washington Bureau: 202-371-2121 **
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