NTEU Continues to Advance Financial Regulatory Reform Agenda in Congress

04/21/2009

As part of this year’s NTEU Legislative Conference in March, union representatives from several financial regulatory agencies represented by NTEU – the SEC, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration – met with the Senior Counsel for the Senate Banking Committee. At the meeting, these union leaders discussed options that the Committee may be considering as it considers possible changes to the structure and authority of the federal financial regulatory agencies.

The Committee’s Senior Counsel indicated that the Committee would be conducting hearings to explore perceived problems and consider possible solutions. The NTEU representatives, including Chapter 293 President Greg Gilman, Legislative Coordinator Bill Friar, and member Kate McHale, subsequently provided the Committee with a number of concrete recommendations relating to regulatory reform of the financial system, to ensure that these views are taken into account as it moves forward.

The union representatives acknowledged that reforms and improvements are necessary to address shortcomings in the current regulatory structure. They expressed the view, however, that there is no need for an overall merger or consolidation of the functions of these major agencies. Such a move would be extremely disruptive to the accomplishment of these agencies’ fundamental missions, as was demonstrated by the substantial problems created by the establishment of the Department of Homeland Security.

For that reason, they recommended that the SEC, OCC, FDIC and NCUA retain their current regulatory missions and roles, at least with respect to the examination of prudential risk, compliance and resolution of failed institutions. In their view, many of the perceived failures by these agencies to identify problems in the financial system in the past several years are attributable not to any inherent flaws in the structure of these agencies, but instead were the result of an insufficient commitment by former agency leaders to the regulatory missions of their agencies during this period. Simply put, examiners and attorneys were not given the resources and tools necessary to properly supervise the financial system or pursue enforcement matters because their leaders did not seem to believe that such supervision and enforcement were necessary or important.

With respect to systemic risk, the union representatives recognized the need to significantly improve regulators’ ability to identify and address systemic risks to the financial system. They suggested that the best available option to accomplish this would be to substantially broaden the scope and authority of the Federal Financial Institutions Examination Council (FFIEC). This was presented as a better alternative to recent suggestions involving increasing the responsibilities of the Federal Reserve Board, which could distract the Fed from its important role in establishing monetary policy. The FDIC, OCC, NCUA, OTS and the Federal Reserve are all current members of the FFIEC, which was established under FIRREA to prescribe uniform standards, principles and report forms for the federal examination of financial institutions by the member agencies. The union representatives recommended expanding the authority of the FFIEC to include the ability to conduct joint examinations to identify and address systemic risk, expanding the membership of the FFIEC to include the SEC and CFTC for systemic risk determinations, and providing permanent staff to assist the FFIEC in performing these important functions.

Specifically with respect to the SEC, the union representatives recommended expanding the authority of the agency over unregulated investment instruments and entities, including explicit statutory authority to regulate hedge fund advisers as investment advisers and to require hedge funds to disclose the contents of their portfolios, leverage amounts and counterparties. They also recommended a self- funding mechanism for the SEC, which would ensure its independence in establishing its budgets and staffing needs from the fees and assessments that it collects. (Currently, those fees collected by the SEC go to the General Treasury, and the agency is then funded and staffed through annual appropriations). In addition, they also called for significant increases in SEC staff to advance its mission of conducting effective examinations and investigations. Finally, to the extent that the Congress decides to consolidate or merge the CFTC into SEC, they urged inclusion of provisions in any such legislation to protect the employment status of current SEC employees and the maintenance of their current compensation, benefits and collective bargaining rights.

NTEU is also providing these recommendations to other key players in Congress.

“I am extremely gratified that the existence of the union at the SEC has afforded frontline employees, acting in concert with employees from other financial regulatory agencies, to make their voice heard clearly in Congress at this critical time,” Chapter 293 President Greg Gilman recently noted. “We will continue to work collectively to advance the agenda of ensuring that the best possible financial regulatory structure emerges from the current debate. I want to thank the dues paying union members at the SEC, whose support of the union makes the union’s support of the SEC possible.”