The House Financial Services Committee convened a two-part hearing today to review bank supervision and risk management in light of JPM’s trading losses (see Client Report REFORM82).  Regulators reiterated many of the defenses employed during the Senate hearing (see Client Report REFORM85), but FinServ Members on both sides of the aisle questioned whether the agencies are truly capable of keeping up with complex banks.  Republican Members and Mr. Dimon focused on what was characterized as a lack of interagency coordination, with Mr. Dimon noting that the FSOC lacks “teeth.”  However, no specific suggestions for restructuring any of the regulatory agencies emerged.  Republicans forcefully advocated higher capital standards, with several suggesting these should be further simplified to ensure focus principally on tough leverage standards.  The FRB witness argued that the new Basel II.5 and III rules will be very tough, and regulators generally discussed the complexities of applying stringent U.S. standards on an extraterritorial basis.  TBTF also came under continued scrutiny, with FDIC Acting Chairman Gruenberg defending OLA on grounds that it does in fact end the prospect of taxpayer support to skeptical Republicans.  He also noted that the agency is considering revising its deposit-insurance premium rules to penalize banks for problematic trading activities if these remain in the wake of the Volcker Rule.  This client report analyzes today’s hearing.

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