Charlie Rose Talks to Gary GenslerBy
As you work on turning the Dodd-Frank financial reforms into actual rules, what can you say to people wondering if this will make the economy a safer place?
The financial reforms that the President and Congress came together on—and we’re now implementing rules on—will help all Americans because it will be less likely that Wall Street’s risk can spill over onto the economy as we saw in 2008. I also think that companies will get greater transparency. They’ll actually be able to see how these exotic products are priced and can focus on what they do well, which is job creation and investment.
There’s been a lot of resistance to the Volcker rule, predictably from the major banks but now from a number of central bankers outside the U.S. Are they right when they say the rule as it is now doesn’t play fair on the international stage?
What the Volcker rule is about, at its core, is lowering the risk taxpayers face to stand behind banking entities. And it’s only about banking entities [and their] proprietary trading. Proprietary trading can lose money as well as make money. It’s very clear, Congress said, that these banking entities will still be able to make markets. And they can make markets in European and Asian sovereign debt as well as commercial paper. Companies across America will still benefit from banks making markets. It’s a balancing act that Congress has given the regulators, but I think that we can move forward over time and get that balance.
The Commodities & Futures Trading Commission recently voted in favor of rules that would protect swaps customers, who are mainly hedge funds and banks. There’s been an outcry that there should be similar protections for futures buyers, some of whom are farmers …
I share the views of many of those in the agriculture community and energy community that we have to look hard at how we enhance customer protections. We’ve done some of that starting in the last two years and we’ve narrowed the way their monies can be invested by the financial firms. We are also looking specifically to see if we can give them similar protections as the swaps customers—and what’s called segregation of their funds all the way down to the clearinghouse.
As these new regulations take shape, how intensive has the lobbying from banks become?
Well, I’d say that’s part of our democratic process. We’ve got, to date, something in the order of 27,000 public comments. We’ve held 15 public roundtables, and I think we’ve had about 1,300 meetings, all of which we’ll list on our website. We’re not required to list them, but we do. And you can see from that list that it is heavily weighted to institutional actors, large banks, but also large pension funds and large companies across this economy. And that’s somewhat natural because the real economy that makes up 94 percent of jobs in the private sector really does benefit from these Dodd-Frank reforms. Many pension funds and mutual funds benefit. But some on Wall Street will have to share their information advantage. That’s what happens when markets are more transparent.
The big banks are now arguing that their foreign swaps should be exempt from any new rules. What are the likely consequences of that?
That will leave a great deal of risk in the American financial system because it’s still the U.S. financial system that would be holding these swaps. There is a significant debate on this, and we’re going to put out and get further public comment. But I think that Congress and the President came together to cover these swaps dealers dealing with U.S. businesses, and that we need greater transparency and lower risk even if the U.S. financial firm happens to enter that trade in London or somewhere else with a U.S. party.
Spirited debate aside, are banks, as far as you know, already moving assets around in advance of the Dodd-Frank rules?
There is a spirited debate, and Europe as well is also working on fundamental reforms and getting closer to reforming the swaps market there. We are aware that some financial institutions have made adjustments. On the positive side, though, we are seeing exchanges coming in to register, we’re seeing clearinghouses, new ones, coming in to register that want to partake in making this information available to the public. They’re called swap data repositories or real-time reporting venues [and they’re] adopting and doing what I think the President and Congress wanted them to do.