SEC Chiefs Exit May Stall Dodd-Frank Rules Including Volcker
December 12, 2012
When Mary Schapiro steps down as chairman of the U.S. Securities and Exchange Commission this week, she’ll leave behind a commission composed of two Democrats and two Republicans -- an even split that could drag an already sluggish agency to a standstill.
Dozens of rules could run aground, including the so-called Volcker rule to limit risky trading by deposit-holding banks, restrictions on executive pay, a ban on conflicts of interest in asset-backed securities and swaps-market regulations.
“The issues that they’re dealing with are divisive issues that haven’t lent themselves to consensus,” said Barbara Roper, director of investor protection for the Washington-based Consumer Federation of America. “It becomes all but impossible on a commission divided 2-2.”
President Barack Obama promoted Democrat Elisse Walter to succeed Schapiro as chairman when she steps down on Dec. 14. Until he wins confirmation for a fifth commissioner, Walter and fellow Democrat Luis Aguilar must find common ground with Republicans Troy Paredes and Daniel Gallagher for rules to move forward.
In an interview, Aguilar described his relationship to other commissioners as “collegial” and said it will be up to Walter to set the agenda.
“We certainly have different thoughts about how certain things should move forward, but we are in communication,” Aguilar said.
It’s not just the commission that may find itself at sea. Three of Schapiro’s top lieutenants are leaving as well -- Meredith Cross of the public disclosures unit, Robert Cook of the markets division, and General Counsel Mark Cahn -- leaving those key rulemaking offices with uncertain leadership.
Among the most prominent financial-industry rules still under construction is the Volcker rule to restrict banks from trading with their own money, potentially endangering depositors. The SEC is writing this Dodd-Frank Act rule along with four other regulators.
“I can’t imagine the Volcker rule that could get through the 2-2 split commission that would satisfy the requirements of the law,” Roper said. “That one seems particularly tough.”
Schapiro told reporters in October that the regulators have “some differences of opinion about how to approach some particular issues.” Gallagher and Paredes both called for Volcker to be put back on the drawing board.
Even if those differences end soon and regulators agree on a rule, the SEC may need several months to examine the costs and benefits before a final vote. The process to weigh each rule’s impacts has become more intensive after the U.S. Court of Appeals tossed out an SEC rule last year, saying the agency failed to conduct a proper assessment.
More recent is this year’s Republican-backed Jumpstart Our Business Startups Act, which passed Congress with support from both parties but now faces resistance from Democrats calling for more investor protections.
One provision throws out the ban against hedge funds advertising for investors. Schapiro first intended to put the rule on a fast track, according to internal e-mails published last week by the House Oversight and Government Reform Committee. She was swayed by protests from consumer groups and said she didn’t “want to be tagged with an Anti-Investor legacy.” Gallagher said in an e-mail he was “furious” Schapiro changed her mind.