Dodd Frank hampered by under-funding
Monday July 25 2011 | 04:24 AM

Regulators in the United States have complained that the implementation of the Dodd Frank Wall Street Reform Act has been hampered by under-funding.

The US Senate Banking Committee heard evidence from regulators on the one-year anniversary of the reforms on Thursday.

Committee members argued along partisan lines about the implications of the Act itself.

Democrats were adamant the Dodd Frank Act is crucial in preventing future financial crises but Republicans were angered by the Act which they say creates over-regulation.

"It has turned the financial regulatory landscape into a nightmare," Republican Senator for Alabama Richard Shelby remarked at the hearing in Washington on Thursday.

Democrat Barney Frank Representative for Massachusetts and one of the Act's main architects lamented the decision by Republicans to cut the budgets of agencies trying to meet the Dodd-Frank deadlines. 

"This nickel and diming the Securities and Exchange Commission and Commodity Futures Trading Commission does grave harm," he told the committee.

He said it was "the worst of all worlds" to reduce funding for regulators trying to write new financial rules.

Regulators including Federal Reserve chairman Ben Bernanke, SEC chairman Mary Schapiro and CFTC chairman Gary Gensler warned the committee of the importance of pushing ahead with Dodd Frank to prevent a repeat of the global financial crisis.

Gensler told the committee regulators needed more support to implement Dodd Frank.

"Without sufficient funds, there will be fewer cops on the beat, but also we won't really even have enough staff to answer the basic questions from market participants and the public on the new rules."

Bernanke addressed concerns in the financial sector that strict derivatives rules could harm US capital markets without a deal on margin requirements.

Bernanke said if lawmakers can't reach an agreement, they may have to reconsider their position on derivatives.

"Our first choice is to equalise the playing field," Bernanke said. 

"If that doesn't happen, we will have to think again about how to meet Dodd Frank's requirements for improved prudential safety, which is what margins are intended to achieve, without disadvantaging our banks."

Federal Deposit Insurance Corporation acting chairman Martin Gruenberg praised the Dodd Frank Act and outlined the changes implemented by his organisation over the past year.

"We have made much progress in one year, but still have considerable work ahead of us," Gruenberg told the committee.

He said the FDIC lost $84bn (€58.3bn ) following the failure of 377 FDIC-insured institutions, but under a restoration plan of increased assessments, the FDIC expects to return a positive balance in the second quarter of 2011.

Gruenberg said the FDIC has worked "rapidly" to implement changes to better stabilise the US banking system including expanding the assessment base, raising deposit insurance coverage limits and making long term changes to the management of the Deposit Insurance Fund.