House Republicans Warn SEC Against Implementing Financial Reform Regulations

Rep. Kevin McCarthy (R-CA)

Yesterday, the American Bankers Association (ABA) explained that it is eagerly anticipating working with the incoming Republican House of Representatives to slow down regulation affecting the financial services industry. “We had been disappointed with a number of legislative outcomes with the past Congress, and so we look forward to better outcomes with this Congress,” said Peter Garuccio, a spokesman for the ABA.

To that end, Republicans on the House Financial Services Committee have been warning regulators implementing the Dodd-Frank financial reform law that the GOP is in no mood to see regulations that actually rein in the predatory and risky practices of the banks. And Reps. Spencer Bachus (R-AL) and “Young Gun” Kevin McCarthy (R-CA) have now fired a shot across the bow of the Securities and Exchange Commission, telling SEC Chairwoman Mary Schapiro to tread lightly when it comes to implementing Dodd-Frank:

Despite its sweeping scope, the Dodd-Frank Act does little to spur the type of capital formation that is essential for any real and lasting economic recovery to take hold. Without access to capital, business slows, and without regulatory certainty, capital disappears…In the 112th Congress, promoting capital formation that leads to the creation of jobs will be at the forefront of our agenda for economic growth. We look forward to your prompt response on the actions the Commission plans to take to implement these important recommendations.

Before Congress left for its pre-election recess, the federal bank regulators — including the SEC — requested funding to begin implementing Dodd-Frank, but Republicans balked and blocked it. And it’s becoming clearer that they intend to deny the agencies funding if the rule-making process isn’t to their liking.

Under Dodd-Frank, the SEC is responsible for laying out new rules of the road when it comes to derivatives trading, credit-rating agencies, and corporate governance — all key areas where regulatory failure contributed to 2008’s financial meltdown. The SEC is also tasked with setting up new offices, like the Office of Women and Minority Inclusion, which will be charged with ensuring fair access to markets.

During the regulatory reform debate, Republicans consistently claimed that any profitable activity that a bank undertakes — even if the profits come via ripping off consumers — is not to be restricted. As Sen. Richard Shelby (R-AL) put it, “[Bank] safety and soundness trumps everything. It trumps the consumer finance whatever.” And the incoming Republicans in the House are taking that sentiment to its logical conclusion, telling the regulators tasked with policing the financial marketplace to ease up or face the consequences.