WASHINGTON (MNI) – The following is the second and final section of
the text of Treasury Under Secretary for International Affairs Lael
Brainard’s remarks prepared Monday for the Institute of International
Bankers:
The Dodd-Frank Act implements these G-20 commitments, and goes
further, providing strong oversight of major derivatives markets
participants and market infrastructure. And the EU is working on a
parallel track to introduce consistent reforms across European markets.
It is also vital to have common agreement on the regulation of
hedge funds, and to extend the perimeter of regulation to ensure
stronger oversight of these funds. We have pursued international
agreement on the same approach adopted by the United States: requiring
all advisers to hedge funds, above a threshold, to register and report
appropriate information so that regulators can assess whether any fund
poses a threat to overall financial stability by virtue of its size,
leverage, or interconnectedness. And to impose heightened supervisory
and prudential standards on entities that do.
It is essential to ensure convergence of regulatory treatment for
hedge funds to avoid a race to the bottom and promote a level playing
field. Indeed, all the members of the G-20 committed to the same
standards for oversight of hedge funds and to implementing these
standards in a nondiscriminatory manner, and we are working hard to
ensure these commitments are fulfilled.
Common Principles and Differentiated Practices
At the other end of the spectrum lies a set of issues that may be
informed by common international principles, but where our national
efforts are most effectively tailored to national circumstances.
We have long recognized differences in the institutional structure
of national financial systems, reflecting different laws and histories.
The United States has long placed restrictions on the scope of
activities undertaken by banks, while some countries in Europe and
elsewhere have long experience with universal banking models. In order
to ensure the financial safety net is not extended to activities it was
never intended to cover, the Dodd-Frank Act would place certain
restrictions on banks engaging in proprietary trading and involvement
with hedge funds. Other countries may take different approaches to
ensure against excessive risk taking by their banking institutions,
appropriate to the particulars of their own institutional structures.
Similarly, one of the central achievements of Dodd Frank will be to
create strong and consistent regulation and supervision of consumer
financial services to protect consumers from unfair, deceptive, and
abusive practices. We look forward to consulting with UK and other
authorities that also put a high priority on this shared agenda, while
recognizing this is fundamentally a domestic imperative.
International Cooperation
Finally, let me address a core part of our reform agenda where the
most effective approach is likely to combine elements of international
convergence and cooperation while recognizing different national
contexts.
Addressing Too Big to Fail is at the heart of our efforts
domestically in The Dodd-Frank Act and internationally through the G-20,
FSB, and Basel Committee. There is growing international consensus that
an effective solution to reduce the moral hazard associated with large
interconnected financial institutions must include at a minimum more
intensive supervision, heightened loss absorbency capacity-reflected in
Basel III-and effective resolution tools and frameworks.
The G-20 agreed that large and complex financial institutions
require particularly careful oversight given their systemic importance.
In the United States, the Dodd-Frank Act has addressed the issue of
systemic firms by bringing all bank holding companies with assets over
$50 billion, as well as non-bank financial firms deemed to be systemic
by our new Financial Stability Oversight Council, under our new enhanced
supervision regime. The EU, for its part, is institutionalizing a new
European Systemic Risk Board, and some countries are instituting new
national oversight mechanisms.
Instituting strong national resolution regimes is also central to
this effort and a key building block for effective cross-border
resolution frameworks. In March, the Basel Committee made an important
contribution with its 10 key recommendations on the cross-border
resolution of banks and non-banks, and G-20 Leaders in Toronto committed
to implementing them. In the months ahead, it will be important to
review implementation at the national level.
And there is an important FSB work agenda to ensure that national
resolution frameworks mesh to provide a strong foundation for
cross-border resolution, ring-fencing and burden-sharing are effectively
addressed, and cooperative frameworks are developed among supervisors
consistent with firm specific resolution and recovery plans. More
analysis will be needed to determine the feasibility of contingent and
bail-in capital instruments, which could contribute to loss absorbency
and serve as complements to effective resolution frameworks, as Paul
Tucker will address.
Let me conclude by noting that the leading economies have made
significant strides in advancing international financial regulatory
reform. With the enactment of The Dodd-Frank Act and agreement on Basel
III, and with important parallel efforts underway in other major
jurisdictions, the outlines of a more resilient financial system are now
clearly in sight. We look forward to working with our partners on
implementation of these efforts in the months and years ahead.
Thank you.
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** Market News International Washington Bureau: 202-371-2121 **
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