Regulators See Dodd-Frank Substantially Complete by End of Year

Dodd-Frank Act measures designed to prevent a repeat of the global credit crisis will be largely complete by the end of this year, financial regulators plan to tell lawmakers at a hearing today on the 2010 law.

“We expect to approach the point of substantial completion of implementation of the Dodd-Frank Act,” Mary Miller, the Treasury Department’s undersecretary for domestic finance, said in remarks prepared for the Senate Banking Committee. “That does not mean we will be able to relax our guard.”

Miller, Federal Reserve Governor Daniel Tarullo, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Comptroller of the Currency Thomas Curry have been called before the Senate panel for a hearing on the status of the 2010 regulatory overhaul. The Fed, FDIC and OCC completed work this week on bank capital rules and proposed a tougher leverage requirement for eight of the largest lenders, including JPMorgan Chase & Co. (JPM) and Bank of America Corp.

Tarullo said by the end of the year regulators should complete implementation of a risk-based capital surcharge for systemically important banks, a liquidity rule, and the Volcker rule to ban proprietary trading by banks.

Tarullo also said he expects this year to complete the Federal Reserve’s enhanced prudential standards for the systemically important institutions it regulates with one exception: standards governing the interconnectedness of institutions. Instead, the Fed will coordinate the single-counterparty credit limit rule with a proposal being developed by international regulators in the Basel Committee.

Nearing End

“As I hope is apparent from this review of progress on the implementation of regulatory reforms, we are at the beginning of the end of the rulemaking process for most of the major Dodd-Frank Act provisions,” Tarullo said in prepared testimony.

The capital rules sought by lawmakers and regulators in response to the 2008 credit crisis “will strengthen our nation’s financial system by reducing systemic risk,” Curry said in his prepared testimony. The Volcker rule restrictions, designed to reduce risk-taking by banks that benefit from deposit insurance and discount borrowing, will be finished in the “near term,” Curry said.

Gruenberg said that the FDIC wants a Volcker rule that preserves “the ability of banking entities to perform important underwriting and market-making functions, including the ability to effectively carry out these functions in less-liquid markets.”

Shadow Banking

Tarullo expressed concern over the risks posed by the non-bank financial sector, including money-market funds and the tri-party repurchase market. Repurchase agreements, or repos, are a form of collateralized borrowing in which the borrower sells the lender a security with an agreement to buy it back at a later date. The Fed has been seeking to strengthen the tri-party repo market, which almost collapsed in 2008 amid the demise of Bear Stearns Cos. and bankruptcy of Lehman Brothers Holdings Inc. during the financial crisis.

“A complete financial reform program must address financial stability risks that emanate from the shadow banking system,” Tarullo said.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.

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