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Wednesday, July 02, 2008
The Chairman's New Clothes
New York – An article from BusinessDay
today sets out the conflicts between Congress, the Fed, the Administration and
the SEC over perceived new oversight powers being awarded the Fed. Senators
Dodd and Shelby of the Senate Banking Committee, sent a letter to Fed Chairman
Bernanke, SEC Chairman Cox and Treasury Secretary Paulson to take no action regarding
the Fed’s new powers until Congress reviews and approves them.
The cause to the issue is the $30 billion emergency loan
that the Fed gave to Bear Stearns in order to avert the investment bank from
going into bankruptcy. This loan is outside of the jurisdiction of the Fed,
since the Fed’s discount window is for commercial banks and not Investment
banks or securities dealers.
Paulson is a proponent of widening the Fed’s powers to
include monitoring investment banks, but this would clearly require congressional
consent . A new structure would allow
the Fed to monitor reserves, capital, liquidity and leverage of the commercial
and investment banking communities.
Congress feels that having the Fed as a backstop for the
investment banks might encourage a moral hazard. We wonder what happens to the
Fed funds market and the Repo markets. Will they become one? There are collateral issues related to this,
specifically who is holding the collateral. But in any case the spread between
repos and fed funds would at least converge.
Posted at 09:12 am by Thomas Hutchinson
 | | | Bill George
July 8, 2008 08:10 AM PDT
SEC, FRB Sign Agreement to Enhance Collaboration, Coordination and Information Sharing
FOR IMMEDIATE RELEASE
2008-134
Washington, D.C., July 7, 2008 — Securities and Exchange
Commission Chairman Christopher Cox and Board of Governors of the Federal Reserve System Chairman Ben Bernanke today signed a memorandum of understanding (MOU) between the two agencies that will deepen their information sharing and cooperation, permitting both agencies to better perform their responsibilities.
Under the MOU between the two agencies, the SEC and the Board would share information and cooperate across a number of important areas of common interest including anti-money laundering, bank brokerage activities under the Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industries, and the regulation of transfer agents. The MOU specifically covers bank holding companies and so-called Consolidated Supervised Entities that own securities firms. It builds on and formalizes the long-standing cooperative arrangements between the SEC and the Board, as well as the more recent cooperation on matters including banking and investment banking capital and liquidity following the Board's emergency opening of credit facilities to primary dealers.
"I am pleased with this agreement," said Federal Reserve Board Chairman Ben Bernanke. "It formalizes and strengthens the ongoing cooperation between our two agencies to enhance the stability of the financial system. I look forward to continuing this productive collaboration with Chairman Cox and his staff."
SEC Chairman Christopher Cox said, "This agreement represents a valuable coordination of the roles of the SEC and the Fed in our capital markets. Years ago, when the dividing lines between commercial and investment banking were bright, the high level of coordination we are establishing today was not a priority for the U.S. government. But today, the interconnectedness of mortgage and lending markets, credit derivatives, securitizations, and counterparty relationships requires the U.S. government to adopt a more coherent and coordinated approach. Just as with our similar arrangement with the CFTC, this agreement will permit the expanded sharing of information on a confidential basis, and help ensure that regulated entities receive a coherent message from Uncle Sam. This is smart government. We look forward to enhancing our collaborative relationship with the Fed within the formal framework covered by the agreement."
The MOU will improve the ability of the SEC to perform its role as primary supervisor of Consolidated Supervised Entities and Primary Dealers, and improve the ability of the Federal Reserve to perform its role in overseeing the stability of the financial system. The importance of this deepened cooperation is highlighted by the recent stress in the financial markets affecting commercial and investment banks, as well as many other market participants.
The SEC recently entered into a similar MOU with the Commodity Futures Trading Commission. An agreement between the SEC and the Department of Labor is anticipated later this summer.
see> http://www.sec.gov/news/press/2008/2008-134.htm
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