Senate Dem Blasts GOP for Holding Up Dodd-Frank Implementation

WASHINGTON — A senior Democrat on the Senate Banking Committee Monday criticized GOP tactics that he said appear aimed simply at slowing down the business of regulators.

During remarks at American Banker's regulatory symposium and later to reporters, Sen. Jack Reed, D-R.I, said Republicans were deliberately trying to prevent credible nominees from being confirmed to regulatory posts, and their legislative attempts to reform the new Consumer Financial Protection Bureau seem like moves meant to impede the bureau's progress.

"First of all, if there are sensible proposals to change this, the legislative process is there. You put in legislation," Reed told reporters after his speech. "But it's somewhat interesting that before the agency really gets out of the blocks so that you can make an objective evaluation of what they're doing, they're saying it has to be changed. I think they just want to frustrate the ability of the agency to operate."

In his remarks to the conference, Reed said some senators have embarked on a "deliberate strategy to block any qualified nominee for financial regulatory positions, including Nobel laureates" — a reference to economist Peter Diamond, whose confirmation to sit on the Federal Reserve Board was blocked — and he also criticized GOP efforts to curb funding for agencies implementing the Dodd-Frank Act. For example, he called on lawmakers to fully fund both the Commodity Futures Trading Commission and the Securities and Exchange Commission, the two agencies with perhaps the largest workload implementing provisions of Dodd-Frank.

"It is this full funding that is critical to implementation of many of the new SEC rules regarding credit rating agencies, security-based swaps, and asset-backed securities," Reed said.

He said if regulators are short on resources to devote full attention to new reforms in the law, such as a regulatory regime for systemically important firms, then they may have to focus on more time-honored regulatory devices such as requiring higher capital requirements.

"Clearly, if the Federal Reserve and others do not have the capacity or tools they need to implement this more dynamic and sophisticated approach, then they may just have to go back to using a much blunter instrument—higher capital requirements," said Reed, who chairs the Senate Banking subcommittee on securities, insurance and investment subcommittee.

Reid disputed concerns that higher capital requirements will have negative economic consequences.

"Although some believe that higher capital requirements would dampen economic growth, recent academic research shows that funding with more equity will have only a modest effect on the cost of credit," Reed said. "And the benefits are huge, not only in preventing financial crisis, but also insulating the economy to ensure long-term growth, and maintaining consumer and investor confidence that ultimately translates to job growth."