U.S. regulators’ Dodd-Frank rules properly balance Wall Street’s pursuit of profits with the public’s need for a stable financial system, said outgoing Commodity Futures Trading Commission Chairman Gary Gensler.
“We struck the right balance but we live in a great Democracy and as we move from Congress to the rule-writing agencies some inevitably do end up in the courts,” Gensler said in a Bloomberg Television interview for broadcast today. “We think we struck the right balance and particularly on the cross-border rules.”
Gensler’s comments follow the American Bankers Association’s court challenge of the Volcker Rule over claims that requiring small banks to divest their holdings in some collateralized debt obligations will cause them about $600 million in losses. The CFTC was among five agencies that issued the rule. The agency has faced several other suits related to rule writing.
The Volcker Rule, named for former Fed Chairman Paul Volcker, who championed it as an adviser to President Barack Obama, was included in the 2010 Dodd-Frank Act that overhauled U.S. financial regulation as a way to restrict banks’ proprietary trading and other risky bets after the 2008 credit crisis. Gensler said the rule, approved on Dec. 10, was “among the most challenging” to write.
Gensler will step down when his term expires on Jan 3. Timothy Massad, the Treasury Department official nominated to succeed Gensler, has yet to have a confirmation hearing in the Senate.
The CFTC, which was empowered under Dodd-Frank Act to bring oversight to swaps traded by firms including Goldman Sachs Group Inc. (GS:US) and JPMorgan Chase & Co. (JPM:US), is in a period of transition. The commission, which is designed to have five members, could dwindle to as few as two before Congress considers the president’s nominees.
Gensler called on Congress to increase the funding of the CFTC.
“We really do need more people to cover this vast swaps market that’s 12 times larger than what we covered in the past,” Gensler said.
He also called for replacing the London interbank offered rate following a probe by U.S. and overseas regulators into its manipulation.
“We found this market was really truly broken,” Gensler said of rates determined by Libor. “It’s so readily and pervasively rigged. That means that big banks easily lied about the most important interest rate at the core of the markets and it needs to be replaced because there’s no real underlying market.”
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