Capital Rules for Brokerages Must Have SEC Input, Gallagher Says

The U.S. Securities and Exchange Commission should ensure that new rules intended to reduce systemic risk don’t harm broker-dealers by treating them like banks, Commissioner Daniel M. Gallagher said today.

The SEC is updating capital requirements for brokerages such as those operated by Goldman Sachs Group Inc. and JPMorgan Chase & Co. and should work with bank regulators on the effort, Gallagher said in a speech at the Institute of International Bankers’ annual Washington conference. Any changes should be limited to brokers affiliated with banks with access to the Federal Reserve’s emergency-lending window, he said.

“We stand ready to work with the Fed and other banking regulators to ensure that any new rules applicable to those entities are enhancements to our existing regime, not duplicative, contradictory or counterproductive,” he said.

Gallagher, a Republican, voiced concern about a recent rule adopted by the Fed that would subject broker-dealers owned by foreign banks to new capital and liquidity requirements for lenders with more than $50 billion in assets. The SEC wasn’t involved in drafting the rule, he said.

The Fed’s approach could prompt brokers to pull back from financing sources such as repurchase agreements and securities lending, which are considered part of the shadow-banking system by some regulators, Gallagher said.

“The last thing anyone wants is the old Washington cliche of a ‘turf war,’” Gallagher said. “For one thing, we’d lose –- the SEC will never have the resources of the banking agencies.”

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