The Memorandum of Understanding (MOU) aimed at coordinating supervision and examination (MOU-SE?) of financial institutions, including investment banks, being worked out between the Federal Reserve and SEC, is reportedly close to being issued, according to recent comments of SEC Chairman Christopher Cox as cited in this article by Rachelle Younglai of Reuters. “’We are making good progress,’” Cox said on June 25 of his work with Federal Reserve Board Chairman Ben Bernanke in developing the MOU, as reported by Younglai. As to timing, Cox added, according to Younglai, “‘I don't think we'd be discussing it publicly at all if we didn't think that we were close to doing it. It's just a question of whether it's before or after the Fourth of July at this point.’”
However, earlier today (June 27) Sen. Chris Dodd (D-CT) and Sen. Richard Shelby (R-AL), Chairman and Ranking Member, respectively, of the Senate Banking Committee, sent a letter to Cox, Bernanke and U.S. Treasury Secretary Henry M. Paulson, recognizing the agencies’ efforts to streamline and improve regulation, but cautioning them: “Given the limited authority of the Fed and the SEC to regulate investment banks with primary dealer status, and Congress’s ultimate responsibility for formulating financial regulatory policy, we ask that no action regarding implementation of the MOU be taken before we can determine that it is in the best interests of our nation’s economy and the well being of its citizens.”
Meanwhile, support for coordinated supervision for all ‘systemically significant institutions,’ was offered by Citigroup CEO Vikram Pandit in his op-ed appearing in today’s Wall Street Journal, “Toward a Transparent Financial System.” Pandit says three principles are key: systemic oversight, a level playing field, and transparency. “Markets cannot clear without transparency,” he said, adding, “Transparency concerns can lead to illiquidity. Yet transparency is difficult to achieve.”
Pandit’s suggestions were far-reaching. In the area of accounting standards, he noted the need for “Global coherence and consistency," and called for “clear guidelines regarding off-balance-sheet instruments.” He added, “Accounting based on a mark-to-model has been severely tested by unobservable inputs intended to estimate the market. This has fed into difficult, far-reaching decisions that impacted capital and other factors as one misinformed trade set off a chain of similar trades.”
“This raises an important question," says Pandit. "Are there alternative accounting approaches we should apply, particularly in dysfunctional markets?”
An expedited review of accounting standards for valuation and off-balance sheet treatment is already underway at the IASB, FASB and SEC. As we have previously reported:
The IASB’s Expert Advisory Panel on valuation in inactive markets is one of the groups addressing questions about valuation in illiquid markets and will also address issues of consolidation of special purpose vehicles involved in securitizations.
FASB is addressing issues concerning QSPEs and other off balance sheet entities involved in securitizations in its upcoming revision to FIN 46R and FAS 140.
The SEC is holding a Fair Value Roundtable on July 9.
Senate Confirms Commissioners for SEC
In other SEC news, the Senate voted today (June 27) to confirm the three nominees for commissioner of the SEC, Dems Luis Aguilar and Elisse Walter, and Republican Troy Paredes, as noted in this article by Manu Raju in The Hill.
In a statement issued today, SEC Chairman Christopher Cox said, “The President and the Senate have given the SEC three outstanding Commissioners. I look forward to welcoming them to their important positions of leadership in the finest securities regulatory agency in the world.
The SEC has laid out an ambitious agenda to improve investor protection and financial markets regulation, and a full complement of Commissioners will help us achieve those important objectives."
As we near the end of June, remember our Do You Know Somebody offer to interview 2 new subscribers (and the current subscribers who refer them) who sign up for our blog by June 30.
We usually post this blog once a day; today’s post is a bit later than usual due to the FEI Staff Picnic, 2008, a fun-filled day complete with water balloon toss, piñata, and a kickball game. Our NJ office HQ staff was pleased to be joined this year by our Washington DC office staff, including Michelle Coleman, Manager, Business Development, Serena Dávila, Director, Technical Activities, and Matt Miller, Director of Tax and Economic Policy. (Miller’s membership in the World Adult Kickball Association (WAKA) may have helped Captain Rudy Katzenberger’s team win 6-4 in today’s FEI kickball match.) Katzenberger, Senior Accountant at FEI, and the entire Activities Team did a great job planning the event. Opening remarks were given by former FEI Chairman Jim Abel, who will serve as interim CEO and President of FEI beginning July 1, as FEI searches for a new President and CEO. As previously announced, FEI’s current President and CEO, Michael P. Cangemi, resigned effective June 30, after which he will continue in a role as senior advisor for FEI, with a focus on accounting policy issues and associated advisory councils. Read more about FEI here.
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