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Regulators prepare Basel-based capital rules

by Ira Teinowitz | Published December 6, 2011 at 6:00 PM

Bank regulators will propose some initial capital rules on Wednesday, Dec. 7, based on standards of the international Basel accords.

Fed Gov. Daniel K. Tarullo provided the news to the Senate Banking Committee at a hearing Tuesday examining the status of Dodd-Frank Act rulemakings. Tarullo told the committee that the Federal Deposit Insurance Corp. on Wednesday will become the first of several financial regulators to issue a notice of proposed rulemaking to implement new Basel related capital requirements on assets held in a bank's trading book. Part of the rules, he said, would do away with credit ratings.

Several senators used the hearing to question whether the Commodity Futures Trading Commission exercised proper oversight role over the recently collapsed MF Global Holdings Ltd. Further widening the breadth of topics discussed at the hearing, Securities and Exchange Commission Chairwoman Mary Schapiro warned senators about going too far when relaxing SEC rules that protect investors.

Schapiro said the SEC is looking at easing some of its rules, including one that requires companies to register as a public company when they have 500 shareholders. But she questioned other suggested rule changes, including one that would allow bigger companies to escape a Sarbanes-Oxley Act requirement that public companies report regularly on the effectiveness of their internal control over financial reporting.

The SEC now requires companies with more than $75 million in market capital to file additional information on their internal controls. Some proposals in Congress touted as an attempt to reduce the costs of capital would raise the level to $1 billion.

Schapiro suggested that this would be a bad idea. "In fact, 60% of public companies do not have to do [the] reporting. To go to $1 billion, which some bills are contemplating, would concern me." She said investors consistently say the independent auditor reports on internal controls is as important an investor protection. "The worst result we could have would be for investors to lose confidence generally in the quality and integrity of financial statements, and the bigger the company it gets the more the concern I would have," she said.

She also said it's not at all clear that increasing the limit would reduce audit costs.

The CFTC's role in overseeing MF Global and CFTC Chairman Gary Gensler's involvement were raised by several senators.

"When Dodd-Frank was passed, the American people were promised that financial regulators would have all the tools and powers they need to properly regulate financial institutions and to protect investors and consumers," said Sen. Richard Shelby, R-Ala., the committee's ranking Republican. "Unfortunately for the American people, more powers and more tools cannot help when regulators fail to do their jobs.

"This lesson is vividly demonstrated by the Commodity Futures Trading Commission's failed regulation of MF Global."

Shelby went on to accuse Gensler of "evading questions" about his role in MF Global's regulation.

Gensler reiterated his statement that while ethics officials at the agency saw no conflict, he voluntarily recused himself from MF Global-related decisions when the CFTC's probe turned into an enforcement action. Gensler for 18 years worked at Goldman, Sachs & Co. When he left 14 years ago, Corzine was CEO. Corzine was most recently CEO of MF Global.

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Regulators prepare Basel-based capital rules

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