WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke and other regulators are expected to face tough questions Thursday from lawmakers over missed deadlines and delays implementing the most sweeping overhaul of financial laws since the Great Depression.
The Dodd-Frank law was passed a year ago in response to the 2008 financial crisis. The law gave the government new powers to break up financial firms that threaten the economy, established safeguards for consumers and investors, and imposed restraints on financial markets that have escaped regulatory oversight.
Bernanke, Securities and Exchange Commission Chairwoman Mary Schapiro and other officials are scheduled to testify before the Senate Banking Committee on the progress they have made writing 243 rules mandated under the law. Nearly half of the rules were supposed to have been finalized by now. But regulators have completed fewer than 50.
Bernanke says in testimony prepared for the hearing that regulators are moving to complete rules on how they would handle banks they deem to pose a threat to the financial system, in an effort to prevent another crisis. Regulators expect to finalize some of the rules this summer, Bernanke says.
The aim is to avoid the kinds of “too-big-to-fail” bailouts of financial institutions that cost taxpayers hundreds of billions of dollars in the crisis.
Ending “too-big-to-fail” requires allowing a big, interconnected financial firm to fail “if it cannot meet its obligations — and to do so without inflicting serious damage on the broader financial system,” Bernanke says in the testimony.
Regulators say the rules are complex and that is why they are behind schedule. It is more important to get them right than to hit deadlines, they say. They are reading thousands of public comments on proposed rules and making changes when appropriate.
Many of the comments have come from banks and financial institutions that would come under the regulations. In some cases, these organizations have succeeded in weakening proposals before they have been completed. For example, the Fed last month adopted a cap of 21 cents on debit-card transactions, which was a more profitable rule for banks than what the central bank had initially proposed.
Rep. Barney Frank, D-Mass., a principal author of the law, also is scheduled to testify at the hearing.
The law also created a federal agency, the Consumer Financial Protection Bureau, which launched Thursday. The agency has broad powers to oversee mortgages, credit cards and other forms of lending. President Barack Obama named former Ohio Attorney General Richard Cordray to head the agency. Republicans have threatened to block his confirmation.
Nearly all Republican lawmakers voted against the financial legislation last year. They say the overhaul has burdened banks and financial firms with excessive regulations that will make them less competitive. They say the pace of the regulators’ rulemaking actually has been too fast.
The Republicans have been trying to weaken the law piece by piece. A Republican-run committee in the House recently approved bills diluting parts of the law.