(Updates with Dugan on accounting rules changes, Bernanke on oversight and systemic risk)
WASHINGTON, July 24 The following are highlights from the House Financial Services Committee hearing on Friday with Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, FDIC Chairman Sheila Bair, Comptroller of the Currency John Dugan, Office of Thrift Supervision acting Director John Bowman and Joseph Smith, North Carolina Commissioner of Banks, testifying on regulatory reform. For a story on the hearing, see, [ID:nN24457090] For a story on Bernanke's testimony, see, [ID:nN24455042] For a story on Geithner's testimony, see, [ID:nN24347905] For a story on Bair's testimony, see, [ID:nWEQ001243] For a story on Bowman's testimony, see, [ID:nWEQ001241] For a story on Dugan's testimony, see, [ID:nWEQ001240]
DUGAN ON POTENTIAL ACCOUNTING RULE CHANGE:
"As I understand it, it would move more of the loans on balance sheet to a mark-to-market or fair value status but it would have different treatment for how the ups and downs would be run through the balance sheet. I do, I must say, have a very significant concern about moving more assets and liabilities into the mark-to-market arena. I thought given all of the issues that we have had this year about the volatility that it introduces to income statements and balance sheets, that we wouldn't have continued marching down that path."
BERNANKE ON OVERSIGHT OF FIRMS POSING SYSTEMIC RISK:
"On order of magnitude, a very rough guess would be 25 (firms). I would like to point out that virtually all those firms are organized as bank holding companies, or financial holding companies, which means the Federal Reserve already has umbrella supervision , so I would not envision the Fed's oversight extending to any significant number of additional firms."
BERNANKE ON MAKING RESERVE BANK PRESIDENTS APPOINTEES:
"We do not support presidential appointments of the Reserve Bank presidents. We are in a situation now where we need to increase our consistency of enforcement and oversight, where we need to coordinate across the system, and I think creating 12 new presidential appointees -- 19 presidential appointees around the FOMC table -- is going to create a more diffuse and decentralized system."
BERNANKE ON FED EMERGENCY LENDING AUTHORITY
"We recognize the need to be careful in the use of this authority and, in particular, if this Congress puts together a resolution authority that can address the problem of failing firms then I would certainly be open, in fact quite eager, to subordinate 13(3) authority to the request, or the requirement, of the resolver."
GEITHNER ON WHY REFORMS SHOULD NOT BE PIECEMEAL:
"I think they need to be done as a package. You can't fix this by just looking at capital over here and looking at consumer protection over here. And on the systemic stuff, including on the rating agencies, you have to look (at a) comprehensive set of reforms together as a package. And as I said in my opening remarks, it is very important that we move this year just because as you already have heard given the scale of interest effected by these reforms, given the amount of authority we are proposing to take away from people who have it today, there is a lot of resistance and opposition and if we wait or we try to do it piecemeal it is going to be much harder, I think, for this committee to find consensus on something sufficiently strong."
GEITHNER ON CREDIT RATING AGENCIES
"I don't see a practical viable alternative to (the issuer-paid model, where credit rating agencies are paid by the bank or issuer whose products they rate).
"It is an important area of reform and we don't believe we have a monopoly of wisdom in these areas and we are happy to look at any idea, including the ones you (Rep. Paul Kanjorski) list in your opening statement."
GEITHNER ON TAXPAYER LOSSES DUE TO BAILOUTS:
"I don't believe we're in the position today or even this month or maybe even this year top give you a realistic estimate yet of those losses."
GEITHNER ON CURRENT SYSTEM OF PRUDENTIAL SUPERVISION
The institutions who have this authority and have teams of dedicated, motivated people with that responsibility today -- they are not enthusiastic about giving up that authority. ... And I understand the obligation they feel. On the substance, though, these are very different types of responsibilities. Prudential supervision is different from consumer protection. ... Again, we've had a running national experiment ... and that did not turn out so well for us. So I think the basic point is -- I don't think there's a plausible defense of maintaining that current system in place today, although I understand why people who still preside over those authorities make the case to preserve them.
GEITHNER ON THE SEVERITY OF THE HARM CAUSED BY FINANCIAL CRISIS:
"The damage has been indiscriminate and unforgiving. Millions of Americans have lost their jobs; families have lost their homes; small businesses have shut down; students have deferred college educations; and seniors have shelved retirement plans."
"As a country, we now know that our financial system failed in its most basic responsibility to be stable and resilient enough to provide credit while protecting consumers and investors."
GEITHNER ON THE NECESSITY FOR CONGRESS TO ACT ON REFORM:
"There exists today a national mandate, not seen in years, to reform our outdated and ineffective regulatory system. Still, despite that reality, there are some who suggest we are trying to do too much too soon, and that we should wait until the crisis has definitively receded. And with respect to consumer protection in financial services, there are even those who contend we should leave things as they are."
"Every financial crisis of the last generation has sparked some effort at reform, but past attempts began too late, after the will to act had subsided."
"That cannot happen this time."
FDIC CHAIRMAN SHEILA BAIR ON PROTECTING CONSUMERS:
"There is a direct correlation between effective consumer compliance programs and safe and sound institutions."
"The (consumer agency) should have sole rule writing authority over consumer financial products and services and the federal banking regulators should be required to examine for and enforce those standards."
"Regulators should take into account off balance sheet assets and conduits as if these risks were on balance sheet."