CongressionalHearings/Dodd-Frank/CHRG-111hhrg53238/CHRG-111hhrg53238--36.txt Mr. Chairman , MBA looks forward to working with the committee on new consumer protection and regulatory modernization legislation as these proposals develop . CongressionalHearings/Dodd-Frank/CHRG-111shrg51395/CHRG-111shrg51395--274.txt AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS Joint Hearing of the CFTC and the SEC -- Harmonization of Regulation September 3 , 2009 Good morning Chairman Schapiro and Chairman Gensler . CongressionalHearings/Dodd-Frank/CHRG-111shrg54789/CHRG-111shrg54789--185.txt This authority would extend to business practices , including compensation practices that push consumers to purchase inappropriate products and services . CongressionalHearings/Dodd-Frank/CHRG-111shrg54589/CHRG-111shrg54589--135.txt To reduce duplication , securities-related OTC derivatives dealers that are banks would be subject to prudential supervision by their Federal banking regulator . CongressionalHearings/Dodd-Frank/CHRG-111shrg54589/CHRG-111shrg54589--135.txt Regulatory reform should include providing the SEC with the tools necessary to police effectively all securities-related OTC derivatives.Q .3 . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--174.txt To mitigate these risks , the Treasury provided equity capital to AIG and the Federal Reserve provided liquidity support backed by the assets of AIG . CongressionalHearings/Dodd-Frank/CHRG-111shrg51395/CHRG-111shrg51395--267.txt How the SEC -LRB- or a New Capital Markets Regulator -RRB- Fits Within the Broader Financial Services Regulatory Framework : Today 's financial crisis has demonstrated that the current system for oversight of U.S. financial institutions is insufficient to address modern financial markets . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--171.txt Indeed , the Federal Reserve was established by the Congress in 1913 largely as a means of addressing the problem of recurring financial panics . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--171.txt --------------------------------------------------------------------------- \ 3 \ Primary dealers are broker-dealers that trade in U.S. government securities with the Federal Reserve Bank of New York . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--171.txt --------------------------------------------------------------------------- Based on the results of these and other efforts , the Federal Reserve is taking steps to improve regulatory requirements and risk management at regulated institutions . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--175.txt The states also encourage industry participants to adopt these standards as part of an institution 's ongoing internal review process . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--178.txt Specifically , the New York Insurance Department is the primary regulator for 10 of AIG 's 71 U.S. insurance companies : American Home Assurance Company , American International Insurance Company , AIU Insurance Company , AIG National Insurance Company , Commerce and Industry Insurance Company , Transatlantic Reinsurance Company , American International Life Assurance Company of New York , First SunAmerica Life Insurance Company , United States Life Insurance Company in the City of New York , and Putnam Reinsurance Company . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--178.txt The stated goal of AIG for the proposed transactions in this third element of the plan was to provide $ 20 billion of liquidity to AIG . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--178.txt AIG would then seek to post these municipal bonds with the Federal Reserve Bank of New York in exchange for cash . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--173.txt If the operations of the institution or entity changed for a significant period of time , the primary federal regulator would change . CongressionalHearings/Dodd-Frank/CHRG-111hhrg48868/CHRG-111hhrg48868--55.txt The scope of government intervention on behalf of AIG has created enormous public interest and acute attention by policymakers . CongressionalHearings/Dodd-Frank/CHRG-111shrg53822/CHRG-111shrg53822--92.txt What role did the way financial contracts are treated in bankruptcy create in both the AIG and Lehman situations?A .5 . CongressionalHearings/Dodd-Frank/CHRG-111hhrg53246/CHRG-111hhrg53246--22.txt STATEMENT OF THE HONORABLE MARY L. SCHAPIRO , CHAIRMAN , U.S. SECURITIES AND EXCHANGE COMMISSION -LRB- SEC -RRB- Ms. Schapiro . CongressionalHearings/Dodd-Frank/CHRG-111shrg53176/CHRG-111shrg53176--158.txt Hedge Funds as Financial Investors One of the most important roles that hedge funds play in our economy is that of investor . CongressionalHearings/Dodd-Frank/CHRG-111shrg53176/CHRG-111shrg53176--162.txt Instead of focusing on an SRO as the response to this question , Congress and the SEC should take steps to bolster the SEC 's resources : There must be full funding for the SEC 's regulatory , inspection , and enforcement efforts . CongressionalHearings/Dodd-Frank/CHRG-111shrg53176/CHRG-111shrg53176--160.txt A New Systemic Risk Regulatory Agency -- Some have advocated creation of an entirely new regulatory agency devoted to systemic risk regulation . CongressionalHearings/Dodd-Frank/CHRG-111shrg52966/CHRG-111shrg52966--71.txt A final supervisory lesson applies to the structure of the U.S. regulatory system , an issue that the Congress , the Federal Reserve , and others have already raised . CongressionalHearings/Dodd-Frank/CHRG-111shrg52966/CHRG-111shrg52966--77.txt The CSE regime was also tailored to reflect two fundamental differences between investment bank and commercial bank holding companies . CongressionalHearings/Dodd-Frank/CHRG-111hhrg52406/CHRG-111hhrg52406--11.txt These products and institutions escape Federal regulation yet often lead to Federal problems such as our current economic and foreclosure crisis . CongressionalHearings/Dodd-Frank/CHRG-111shrg54789/CHRG-111shrg54789--180.txt --------------------------------------------------------------------------- Nonetheless , as these examples show , State law is an important source of ideas for future Federal consumer protections . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--188.txt In its capacity as consolidated supervisor of AIG , the OTS had the authority and responsibility to evaluate AIG 's CDS and securities lending businesses . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--196.txt With respect to the SEC , the Federal Reserve has information sharing arrangements in place for companies under our supervision . CongressionalHearings/Dodd-Frank/CHRG-111shrg53822/CHRG-111shrg53822--90.txt Congress must resolve a number of complex issues , however , in creating an effective resolution process for these non-bank institutions . CongressionalHearings/Dodd-Frank/CHRG-111hhrg53245/CHRG-111hhrg53245--21.txt Point number two : A key aspect of the reform is establishing the Federal Reserve as a systemic risk regulator . CongressionalHearings/Dodd-Frank/CHRG-111shrg51395/CHRG-111shrg51395--272.txt AIG 's ability to take large positions appears to stem primarily from a failure of AIG to follow widely used , generally accepted best practices with respect to collateralization . CongressionalHearings/Dodd-Frank/CHRG-111shrg55278/CHRG-111shrg55278--110.txt The Administration 's Proposed Approach The council approach to a systemic risk regulator has received support from Federal and State regulators and others . CongressionalHearings/Dodd-Frank/CHRG-111shrg51290/CHRG-111shrg51290--2.txt It also means increased accountability , disclosure and transparency to ensure that consumers and investors understand the rules of the road regarding their transactions . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--176.txt My testimony will focus primarily on AIG , the holding company , and AIG Financial Products -LRB- AIGFP -RRB- . CongressionalHearings/Dodd-Frank/CHRG-111shrg55278/CHRG-111shrg55278--106.txt Under Chairman Bernanke 's leadership , the Federal Reserve has adopted strong consumer protection measures in the mortgage and credit card areas . CongressionalHearings/Dodd-Frank/CHRG-111shrg56376/CHRG-111shrg56376--127.txt The Treasury Proposal would make these types of firms subject to the Bank Holding Company Act and supervision by the Federal Reserve Board . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--5.txt In addition , the Federal Reserve had to establish a special facility to help unwind AIG 's securities lending program . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--5.txt The causes of AIG 's collapse raise profound questions about the adequacy of our existing State and Federal financial regulatory regimes . CongressionalHearings/Dodd-Frank/CHRG-111shrg51303/CHRG-111shrg51303--12.txt Another important point is that AIG 's credit default swaps were protecting against credit losses on the highest rates , super-senior , AAA-rated tranche of collateralized debt obligations . CongressionalHearings/Dodd-Frank/CHRG-111shrg52619/CHRG-111shrg52619--177.txt Congress needs to address the reliance on credit rating agencies and credit enhancement features in the securitization of mortgage-backed securities in the secondary market .