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Regulatory Reform Scott Garrett is involved on the ground level of talks about Financial Services Regulatory Reform. As the ranking member of the Subcommittee on Capital Markets for the House Financial Services Committee for the 111th Congress, Garrett is the top Republican of the subcommittee most closely involved with these issues.
In a subcommittee hearing on systemic risk, Garrett made the following opening statement, with regard issues related to regulatory reform:
“For me, there are still several fundamental questions that have yet to be answered as we embark on examining the potential future role for a systemic regulator.
“First, we still don’t have a single, agreed-upon definition of exactly what “systemic risk” is, nor do we know exactly what a systemic regulator would be – what roles it would have, who would be under its jurisdiction, etc.
“Second, the Committee needs to be careful not to get ahead of itself. We can not come up with an appropriate solution in this area until we have a better understanding and more consensus on what the actual causes to our current financial crisis were.
“This subcommittee and the full Financial Services Committee have a lot on their plates. And a lot is at stake depending on what this congress ultimately decides to do in the area of regulatory reform. I can’t stress this point enough -- We need to get this right and not move too quickly simply to illustrate that we are “doing something”.
“What we do know is that many areas of our financial services sector already subject to significant regulation are some of the areas with the most problems. Bear Stearns and Lehman Brothers, not to mention Bernie Madoff, were regulated by the SEC. IndyMac and Washington Mutual were both regulated by the Office of Thrift Supervision. Additionally, OTS had oversight responsibility for the unit of AIG where most of its problems originated.
“The Federal Reserve, itself, which is often mentioned as a potential candidate for a systemic risk regulator role, certainly has a regulatory record that leaves a lot be desired. Its handling of monetary policy in the years leading up to the current crisis is often mentioned as one of the crisis’ enabling events. Furthermore, the Fed already has the role of safety & soundness and prudential limits regulator for large bank holding companies – companies such as Citi and Bank of America, which are two of the largest recipients of federal TARP funds whose perceived uneasy state have led to much of the uncertainty in the broader markets.
“If all of these and other regulators were on the job, but didn’t do a good job with the powers vested in them, then why should we have faith that a new “super” regulator of systemic risk will do any better?
“The Fed, in particular, raises certain concerns for me. It already has significant responsibility in the area of monetary policy as well as its ongoing bank regulatory role. In addition, as an independent institution, there is a certain lack of political accountability for its actions. I’m not sure it’s wise to consolidate so much additional responsibility in an entity that does not have to answer to the American people.
“Furthermore, the Fed has no particular expertise regulating entities outside the banking sector such as those in the insurance or the securities industry, two potential areas it would be asked to oversee as a systemic regulator.
“There are other aspects that concern me about certain systemic regulator proposals that have been proposed. Chief among these concerns is identifying institutions with systemic significance. If this were to be done, the market would likely view these institutions as having a de facto guarantee of federal government support during times of financial stress. Sound familiar? Not only would this designation likely lead to unfair advantages in the marketplace such as lower costs of capital, but it would also socialize market failure while leaving profits in private hands. This is exactly what happened with Fannie and Freddie and we all know how that ended.
“In sum, I have not yet been convinced that there is a workable systemic regulator solution that would provide a net benefit to our economy going forward. That being said, we are at the beginning of this process, not the end, and as I mentioned earlier in my remarks, I believe this subcommittee and the full committee should take a very deliberative approach to not only the systemic regulator question, but to comprehensive financial services regulatory reform, as well.” Related Documents: Related Files:
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Congressman Scott Garrett Proudly Serving the 5th District Of New Jersey
