Government gets a jump on preparing for regulatory overhaul
Wednesday, July 14, 2010
Administration officials and federal regulators quietly began laying the groundwork to implement the far-reaching measures in the 2,300-page regulatory overhaul legislation weeks ago, even though the bill has not yet cleared Congress.
The Senate moved to hold a vote on Thursday, and the bill, with support from three Republicans, now seems all but certain to become law. The House already approved the package, meaning that within days the focus will shift to the mountain of work needed to transform thousands of pages of legislative text into regulatory reality.
"It's like taking the elephants over the Alps -- it's on that order of magnitude in terms of the task in front of all the regulators," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a Washington research firm. Even disregarding the ongoing debate about whether the bill will rein in the recklessness and regulatory failures that led to the financial crisis, she said, "the immutable fact is that a lot has got to change."
One central example is the creation of a Consumer Financial Protection Bureau within the Federal Reserve, which the bill states must be up and running within a year. The new regulator, which would have autonomy to write and enforce rules aimed at protecting borrowers from lending abuses, will have to hire a sea of federal employees and gather hundreds of millions in funding from the Fed's coffers.
Administration officials have held preliminary discussions over whom the president could appoint to the powerful post to lead the agency. The new director would be "authorized to employ attorneys, compliance examiners, compliance supervision analysts, economists, statisticians, and other employees as may be deemed necessary to conduct the business of the bureau."
Separate offices must be created to deal with issues affecting women, minorities, military families and senior citizens. The bill also calls for an Office of Financial Education "to educate and empower consumers to make better informed financial decisions." Even small decisions will consume time -- from the endless details of office furniture to setting up phone and computer systems.
The flurry of activity over the consumer bureau represents just a hint of the bustle to come.
The bill orders officials to dissolve the Office of Thrift Supervision and merge its responsibilities into the Office of the Comptroller of the Currency -- both agencies with sizable workforces. It mandates the government to set up new oversight of the vast financial derivatives market, and it calls for a new council of top regulators to monitor risks to the financial system. In addition, it requires regulators to bring on staff who can help to wind down failing financial firms. These officials will also have to conduct dozens of new studies, from possible curbs on short sales of stock to how much cash reserves large nonbank financial companies should hold.
Securities and Exchange Commission spokesman John Nester said agency officials "have already begun preparing for the many rulemakings, studies and other responsibilities that would be required by the law." At the OTS and OCC, "we have a working group of senior managers from both agencies that have begun to discuss the merger," said OCC spokesman Robert Garsson.
"We've been doing internal planning to prepare for the passage of the legislation," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., who plans to put in place the capability for the agency to wind down the AIGs and Lehman Brothers of the world next time around, if necessary. "As soon as the bill becomes law," she said, "we will be moving to hire additional staff with expertise in investment banking, broker dealers and the insurance business, because a lot of the affiliated activity in these larger financial organizations involves that."
In addition, the bill will require some of the largest, most interconnected financial firms to create "living wills" that essentially detail how they would be liquidated in the event of a crisis without crashing the financial system. FDIC officials already have been contemplating the guidelines for what kind of information those wills should include. "That will be ongoing," Bair said. "There will have to be real-time monitoring and updating of the living wills; that will be another important function that will keep our staff busy."
Some of the same people who helped shape the legislation over the past year are in line to oversee its implementation. At Treasury, Deputy Secretary Neal Wolin and Michael Barr, an assistant secretary, are expected to spearhead many of those efforts.
Even though work to implement new rules has already begun, President Obama on Tuesday urged the Senate to act quickly.
"It will end an era of irresponsibility that led to the loss of 8 million jobs and trillions of dollars of wealth," Obama said. "This reform is good for families; it's good for businesses; it's good for the entire economy."
At least three Senate Republicans have pledged their support for the bill, giving Majority Leader Harry M. Reid (D-Nev.) confidence that he has the 60 votes needed to overcome a filibuster and prompting him to push for a final vote Thursday morning.
"We're going to make sure big bankers can never again gamble away our future," Reid said. "We're going to make sure that there's not a next time."