Statement of
Martin J. Gruenberg, Acting Chairman,
Federal Deposit Insurance Corporation
on
International Harmonization of Wall Street Reform:
Orderly Liquidation, Derivatives,
And
the Volcker Rule before the Committee
on Banking Housing and Urban Affairs,
United States Senate; 538 Dirksen
Senate Office Building
March 22, 2012
Good morning Chairman Johnson, Ranking Member Shelby and members of the
Committee. Thank you for the opportunity to testify on international harmonization
issues related to Wall Street reform.
The financial crisis of 2008 exposed a number of serious vulnerabilities in the U.S.
financial system and in other financial systems around the world. In the years leading up
to the crisis, misaligned incentives, excessive leverage and risk taking, and gaps in
regulation all contributed to a serious and, at the time, unrecognized increase in
systemic risk. The financial crisis that followed in 2008-09 led to the most severe
economic downturn since the 1930s.
In the immediate wake of the financial crisis, the Group of Twenty (G-20) nations,
through the Financial Stability Board, jointly resolved to strengthen financial regulation
across jurisdictions and enhance cross-border cooperation among financial regulators.1
This broad-based commitment to reform recognized both the highly interconnected
nature of the global financial system and the enormous economic costs of the financial
crisis. The intended result is to reduce the likelihood and severity of future financial
crises, and to enhance the effectiveness of the international regulatory response should
crises occur. As implementation of the Dodd-Frank Act proceeds in the United States,
the FDIC continues to work with our international counterparts to undertake reforms that
will be needed for a stronger and more stable global financial system in the future.
My testimony today will discuss three key areas where the post-crisis implementation of
financial reforms in the United States have an important international component: (1)
the cross-border resolution of large, systemically important financial institutions; (2)
capital standards; and (3) capital market reforms.
Cross-Border Resolution of Large, Systemically Important Financial Institutions (SIFIs)
Section 210 of the Dodd-Frank Act requires the FDIC to "coordinate, to the maximum
extent possible" with appropriate foreign regulatory authorities in the event of a
resolution of a covered financial company with cross-border operations. The FDIC has
Martin J. Gruenberg, Acting Chairman,
Federal Deposit Insurance Corporation
on
International Harmonization of Wall Street Reform:
Orderly Liquidation, Derivatives,
And
the Volcker Rule before the Committee
on Banking Housing and Urban Affairs,
United States Senate; 538 Dirksen
Senate Office Building
March 22, 2012
Good morning Chairman Johnson, Ranking Member Shelby and members of the
Committee. Thank you for the opportunity to testify on international harmonization
issues related to Wall Street reform.
The financial crisis of 2008 exposed a number of serious vulnerabilities in the U.S.
financial system and in other financial systems around the world. In the years leading up
to the crisis, misaligned incentives, excessive leverage and risk taking, and gaps in
regulation all contributed to a serious and, at the time, unrecognized increase in
systemic risk. The financial crisis that followed in 2008-09 led to the most severe
economic downturn since the 1930s.
In the immediate wake of the financial crisis, the Group of Twenty (G-20) nations,
through the Financial Stability Board, jointly resolved to strengthen financial regulation
across jurisdictions and enhance cross-border cooperation among financial regulators.1
This broad-based commitment to reform recognized both the highly interconnected
nature of the global financial system and the enormous economic costs of the financial
crisis. The intended result is to reduce the likelihood and severity of future financial
crises, and to enhance the effectiveness of the international regulatory response should
crises occur. As implementation of the Dodd-Frank Act proceeds in the United States,
the FDIC continues to work with our international counterparts to undertake reforms that
will be needed for a stronger and more stable global financial system in the future.
My testimony today will discuss three key areas where the post-crisis implementation of
financial reforms in the United States have an important international component: (1)
the cross-border resolution of large, systemically important financial institutions; (2)
capital standards; and (3) capital market reforms.
Cross-Border Resolution of Large, Systemically Important Financial Institutions (SIFIs)
Section 210 of the Dodd-Frank Act requires the FDIC to "coordinate, to the maximum
extent possible" with appropriate foreign regulatory authorities in the event of a
resolution of a covered financial company with cross-border operations. The FDIC has
been working diligently on both multilateral and bilateral bases with our foreign
counterparts in supervision and resolution to address these crucial cross-border issues.
The FDIC has participated in the work of the Financial Stability Board through its
membership on the Resolution Steering Group, the Cross-border Crisis Management
Group and a number of technical working groups. The FDIC also has co-chaired the
Basel Committee's Cross-border Bank Resolution Group since its inception in 2007.
Key Attributes
In October 2011, the Financial Stability Board released Key Attributes of Effective
Resolution Regimes for Financial Institutions. The Key Attributes build on the set of
recommendations developed by the Cross-border Bank Resolution Group that were
published in March 2010 following its assessment of lessons learned during the crisis.
The Key Attributes set out the parameters of a legal and regulatory regime that would
allow authorities to resolve financial institutions in an orderly manner without taxpayer
exposure to loss while maintaining continuity of vital economic functions. They address
such critical issues as the scope and independence of the resolution authority, the
essential powers and authorities that a resolution authority must possess, and how
jurisdictions can facilitate cross-border cooperation in resolutions of significant financial
institutions. The Key Attributes also provide guidelines for how jurisdictions should
develop recovery and resolution plans for specific institutions and for assessing the
resolvability of their institutions. The FDIC was deeply involved in the development of
the Key Attributes and many of them parallel the provisions of the U.S. resolution
regime under Title II of the Dodd-Frank Act. The United States has been recognized for
its leadership in developing a credible resolution process for large non-bank financial
companies.
In November 2011, the G-20 endorsed the Key Attributes. As a result, financial
regulators from the G-20 member nations are required to move toward a resolution
framework to resolve SIFIs in an orderly manner that protects global financial stability. A
methodology to assess countries' progress toward implementing the Key Attributes is
now under development.
Crisis Management Groups
The FDIC and its U.S. and foreign financial regulatory counterparts have formed Crisis
Management Groups under the auspices of the Financial Stability Board for each of the
internationally active SIFIs (termed Global SIFIs or G-SIFIs) identified by the G-20 at
their November 4, 2011, meeting. These Crisis Management Groups, consisting of both
home and host country authorities, are intended to enhance institution-specific planning
for possible future resolution. These groups allow regulators to identify impediments to a
more effective resolution based on the unique characteristics of a particular financial
company.
counterparts in supervision and resolution to address these crucial cross-border issues.
The FDIC has participated in the work of the Financial Stability Board through its
membership on the Resolution Steering Group, the Cross-border Crisis Management
Group and a number of technical working groups. The FDIC also has co-chaired the
Basel Committee's Cross-border Bank Resolution Group since its inception in 2007.
Key Attributes
In October 2011, the Financial Stability Board released Key Attributes of Effective
Resolution Regimes for Financial Institutions. The Key Attributes build on the set of
recommendations developed by the Cross-border Bank Resolution Group that were
published in March 2010 following its assessment of lessons learned during the crisis.
The Key Attributes set out the parameters of a legal and regulatory regime that would
allow authorities to resolve financial institutions in an orderly manner without taxpayer
exposure to loss while maintaining continuity of vital economic functions. They address
such critical issues as the scope and independence of the resolution authority, the
essential powers and authorities that a resolution authority must possess, and how
jurisdictions can facilitate cross-border cooperation in resolutions of significant financial
institutions. The Key Attributes also provide guidelines for how jurisdictions should
develop recovery and resolution plans for specific institutions and for assessing the
resolvability of their institutions. The FDIC was deeply involved in the development of
the Key Attributes and many of them parallel the provisions of the U.S. resolution
regime under Title II of the Dodd-Frank Act. The United States has been recognized for
its leadership in developing a credible resolution process for large non-bank financial
companies.
In November 2011, the G-20 endorsed the Key Attributes. As a result, financial
regulators from the G-20 member nations are required to move toward a resolution
framework to resolve SIFIs in an orderly manner that protects global financial stability. A
methodology to assess countries' progress toward implementing the Key Attributes is
now under development.
Crisis Management Groups
The FDIC and its U.S. and foreign financial regulatory counterparts have formed Crisis
Management Groups under the auspices of the Financial Stability Board for each of the
internationally active SIFIs (termed Global SIFIs or G-SIFIs) identified by the G-20 at
their November 4, 2011, meeting. These Crisis Management Groups, consisting of both
home and host country authorities, are intended to enhance institution-specific planning
for possible future resolution. These groups allow regulators to identify impediments to a
more effective resolution based on the unique characteristics of a particular financial
company.