Treasury Under Secretary Lael Brainard testified before the committee, saying that the U.S. move to implement financial reforms has put the country ahead within the international community.
“Some argue that by moving first, we have put the United States at a competitive disadvantage,” Brainard said. “To the contrary, by moving early, we have been able to lead from a position of strength in setting the international reform agenda and elevating the world’s standards to our own. By contrast, Europe opted to move more slowly…As a result, many euro banks were less resilient in the face of shocks last year…”
Federal Reserve Governor Daniel Tarullo said that while many Dodd-Frank reforms have strengthened the U.S. financial system, some measures will not be well-received in the international community.
“There are also some elements of the Dodd-Frank Act that are unlikely to be pursued internationally in any comparable form,” Tarullo said. “These areas of U.S.-only regulatory reform can present particular challenges to implementation, both in terms of the potential impact that they may have on the ability to compete abroad and the extent to which they may affect the activities of foreign financial institutions in U.S. markets and with U.S. counterparties.”
One such measure, Tarullo said, is the Volcker Rule. Critics both domestic and abroad have opposed the Volcker Rule, which prohibits banks from engaging in proprietary trades, saying that the mandate would damage market liquidity and U.S. competitiveness. Tarullo advised U.S. regulators to tread lightly when implementing the rule.
“In each of these areas, U.S. regulators will need to carefully consider the concerns that have been raised and the broader international implications of the Volcker Rule as we work to finalize our implementing rules,” Tarullo said.