The Senate Banking Committee convened a hearing today to review Dodd-Frank progress and regulatory oversight in light of the JPM trading losses (see Client Report REFORM82), putting Thomas Curry very much on the defensive in his first Congressional hearing as Comptroller of the Currency.  Chairman Johnson (D-SD) was gentle, but other Democratic Members hammered Mr. Curry on what they said was a lack of oversight and regulatory response, with Sen. Brown (D-OH) going as far as to suggest that OCC staff responsible for monitoring the trades be replaced.  Sens. Merkley (D-OR) and Warner (D-VA) also pointed to the losses as evidence for a strong Volcker Rule (see FSM Report PROPTRADE10), while Republicans questioned why this episode would have any impact on how the rule is finalized considering the relatively small size of the losses.  Instead, GOP Members touted heightened capital levels as the best protection against systemic risk.  The hearing not only foreshadowed what to expect at next week’s hearing with JPM CEO Jamie Dimon, but it also shed light on the rules to be adopted on Thursday to finalize the Basel II.5 and propose the Basel III capital frameworks, with regulators making clear that they plan a tough approach on capital for the largest banks.  However, Comptroller Curry provided detail in his written statement indicating also that the Basel III rules will continue a differentiated capital framework for banks based on size.  Treasury Deputy Secretary Wolin also indicated that tough new concentration proposals will be out shortly from the FRB.  Mr. Curry for the first time stated that the OCC is holding bank boards accountable as a fiduciary duty for safety and soundness and that all regulators are “reminding” parent directors that risk tolerances must be set on an enterprise-wide level and for significant business lines.  This client report analyzes today’s hearing.

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