SECRETARY OF THE TREASURY LEW'S SPEECH AT FSOC MEETING

FROM: U.S. DEPARTMENT OF TREASURY
Remarks by Treasury Secretary Jacob J. Lew at Meeting of the Financial Stability Oversight Council (FSOC)
As prepared for delivery

I would like to call the Financial Stability Oversight Council meeting back to order.

I want to start by welcoming Mary Jo White to the Council. I also want to thank Elisse Walter for her hard work over the past several months.

We are meeting to discuss the Council’s annual report. I will talk more about the report in a few moments, but first I would like to take note of why continuing our work on financial reform is absolutely essential.

As we gather together today, the financial system is much more resilient than it was five years ago, and members of this Council have made a great deal of progress in building a safer system, including much progress over the last year.

The Federal Reserve issued a new framework for the consolidated supervision of large financial institutions in December.

The Securities and Exchange Commission and the Commodity Futures Trading Commission continue to fill in the remaining pieces of a new comprehensive oversight framework for derivatives that will reduce risk and increase transparency.

The Consumer Financial Protection Bureau finalized new mortgage rules that provide additional protections for borrowers.

And the FDIC continued to implement the new framework for orderly liquidation authority.

So we have made important strides over the last year, and our financial system is stronger. But, as everyone here knows, much work still remains.

Let me turn now to what is happening today.

In an executive session, we discussed the Council’s continued analysis of nonbank financial companies. It is critically important that the Council take the time to get the analysis right, and we expect to vote on designations of an initial set of nonbank financial companies soon.

The Council’s 2013 annual report released today informs the public about actions the Council has taken over the past year, developments in the financial system during that time, and the challenges ahead.

Our annual report also lays out a number of recommendations to increase the stability of our financial system. I would like to briefly highlight some of the specific areas covered in the report.

A great deal of work remains to attract private capital to our nation’s housing finance system and bolster a housing market showing signs of recovery.

We need to strengthen markets that may be susceptible to destabilizing runs and fire sales.

We need to increase our vigilance to operational risks, whether from cyberattacks or from devastating acts of nature like we saw with Superstorm Sandy.

And we must work with our foreign counterparts to reform the governance and integrity of financial benchmark reference rates like LIBOR and to consider transitions toward alternative benchmarks.

In closing, I want to thank the members of the Council and their staffs for working tirelessly to put together this year’s report and make the financial system more resilient.

And now before we begin with the presentation, I want to give the members of the Council the opportunity to make opening remarks.

CHAIRMAN CFTC SPEAKS TO FINANCIAL STABILITY OVERSIGHT COUNCIL

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
 
Statement of Chairman Gary Gensler Before the Financial Stability Oversight Council

April 25, 2013
I support the Financial Stability Oversight Council’s (FSOC) annual report and the recommendations. I want thank the FSOC members and their staffs for their work on this year’s important report and capturing the vulnerability to our financial system in its seven themes. I appreciate and wish to compliment their dedication to and coordination on financial reform.

Congress asked us to make recommendations once a year to enhance the integrity, efficiency, competitiveness and stability of U.S. financial markets.

In addition, we are to make recommendations to promote market discipline and maintain investor confidence. In that regard, the report recommends reforms of wholesale funding markets; housing finance; reference rates, such as LIBOR and similar interest rate benchmarks; and heightened risk management and supervisory attention.

Further, the FSOC agencies have made great progress on financial reform since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Working with FSOC agencies, the CFTC has completed most of the Title VII swaps market reforms on transparency, clearing and oversight of swap dealers. The market is increasingly moving to implementation of these common-sense rules of the road.

There are two critical areas, however, in which the CFTC must complete reforms.

First, it is a priority to finish rules to promote pre-trade transparency, including those for swap execution facilities and the block rule for swaps.

Second, it’s a priority that the Commission, working with domestic and international regulators, complete guidance on the cross-border application of swaps market reform.

SPEECH BY MARY SCHAPIRO AT OCTOBER 12, 2011 OPEN MEETING OF THE SEC

The following excerpt is from the SEC website: SEC Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. October 12, 2011 "Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 12, 2011. The Commission today will consider two proposals stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act. First, we will consider whether to propose a rule to implement Section 619 of the Dodd-Frank Act — or what we commonly refer to as the Volcker Rule. Second, we will consider whether to propose new rules that would set out the registration process for security-based swap dealers and major security-based swap participants. I would like to thank the U.K. Financial Services Authority and its technical staff as well as the Commission’s technical staff for making it possible for me to participate in this open meeting from London. Although I do not know if this is a first for the Commission, it certainly is a first for me, and I appreciate the effort that has gone into facilitating this transatlantic open meeting to propose these important Dodd-Frank Act rulemakings. * * * We begin with the proposal to implement the Volcker Rule, which generally prohibits certain banking entities from engaging in proprietary trading or sponsoring or investing in a hedge fund or private equity fund. The statute is intended to curb the proprietary interests of commercial banks and their affiliates in order to protect taxpayers and consumers by prohibiting insured depository institutions from engaging in risky proprietary trading. Section 619 is a key component of the Dodd-Frank legislation. Its implementation would be a step forward in reducing conflicts of interests between the self-interests of banking entities and the interests of their customers. The statute is aimed at constraining banking entities’ proprietary trading, protecting the provision of essential financial services and promoting the stability of the U.S. financial system. In drafting this proposal, the Commission worked with our fellow regulators to ensure the rule will be applied consistently across institutions. Indeed, today’s rule is being proposed jointly with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and eventually the CFTC. This has been an extensive undertaking. Throughout the process of formulating this proposal, the SEC staff worked actively and continuously with the staffs of our fellow regulators in this collaborative effort, marked by more than a year of weekly, if not more frequent, interagency staff conference calls, interagency meetings, and shared drafting. The dedication and collective efforts of this interagency team deserve our thanks. Under the proposed rule, certain banking entities generally would be prohibited from engaging in proprietary trading. This includes banks, bank holding companies and their affiliates — as well as the U.S. operations of foreign banks and bank holding companies and their affiliates, including affiliated broker-dealers and investment advisers. In addition, the proposed rule prevents these entities from circumventing this proprietary trading prohibition in that it restricts these entities from sponsoring or investing in hedge funds or private equity funds. At the same time, the proposed rule — as required by the Dodd-Frank Act — permits certain activities necessary for capital raising and the healthy functioning of our securities markets. These include such things as market-making related activities, risk-mitigating hedging, and underwriting. These otherwise permitted activities are not permitted, however, if they involve material conflicts of interest, high-risk assets or trading strategies, or if they threaten the safety and soundness of banking institutions or U.S. financial stability. Although the proposed rule broadly captures all securities and security-based swap dealer accounts, the proposal seeks to strike an appropriate balance between prohibiting proprietary trading and continuing to permit activities that are consistent with normal course market making, risk-mitigating hedging and underwriting. In addition, the proposed rule implements the Dodd-Frank Act’s prohibition on, as principal, directly or indirectly acquiring and retaining an ownership interest in, or having certain relationships with, a hedge fund or private equity fund. In developing this proposal, we have considered comments received in response to the Financial Stability Oversight Council’s (FSOC) January 2011 study formalizing the FSOC’s findings and recommendations for implementing Section 619, as well as additional comments we have received. That said, we believe it is important to gain additional information, including empirical data, about the potential impacts the proposed rule will have. We ask a number of questions about such impacts in the proposal, and we look forward to receiving comments. Before I turn to David Blass of the Division of Trading and Markets to provide a detailed discussion about the staff’s recommendation, I would like to thank Gregg Berman, David Blass, Catherine McGuire, Josephine Tao, Liz Sandoe, David Bloom, Anthony Kelly, Angela Moudy, Daniel Staroselsky, and Nathaniel Stankard from the Division of Trading and Markets for their incredibly hard work on this. In addition, I would like to thank Robert Plaze, Daniel Kahl, Tram Nguyen, Michael Spratt, and Parisa Haghshenas from the Division of Investment Management for their long hours and hard work devoted to preparing the recommendation before us. I also would like to thank their colleagues in the Division of Corporation Finance: Paula Dubberly, Amy Starr, Katherine Hsu, John Harrington, and David Beaning. In the Division of Enforcement: Charlotte Buford and Jason Anthony. In the Office of the General Counsel: Meridith Mitchell, Lori Price, Paula Jenson, Sara Cortes, and Jill Felker. And in the Division of Risk, Strategy, and Financial Innovation: Jennifer Marrietta-Westberg, Adam Yonce, Chuck Dale, and Rick Bookstaber. In addition, I would like to thank our colleagues at the Board, the CFTC, the FDIC, the OCC, and the Department of the Treasury for their collegiality and thoughtful input in working with our staff to develop the proposal before us. And finally, of course, I would like to thank my colleagues on the Commission and their counsels for their work and comments on the proposal. I will now ask David to provide us with additional details about the staff’s recommendations.”