The SEC’s decision this week to push back a bit from its push-out rules is an example of the happy coincidence of policy pressure and public events. Pressure from the banking industry and its regulators has raised the heat so high that it was clear that SEC Chairman-nominee Pitt would have had to spend his whole confirmation hearing promising not to promulgate the rule had the SEC not shown some give the day before.
However, the SEC’s decision to postpone compliance until next year is only a reprieve, not a retreat. Indeed, its decision may well be a stroke of tactical inspiration. As noted, Harvey Pitt would have faced a grilling on the rule and been forced to take a stand. Now, he need only comment on the SEC’s action and promise to listen to all sides. This preserves his discretion, and of course also keeps the SEC’s options open.
Some have suggested to us that the SEC knew not what it did when it did the push-out rule. We don’t think so. The SEC as an institution has pushed for push-outs for decades, it is firmly convinced that the bank regulators simply can’t be trusted with investor protection, and the SEC further has little liking for ERISA or the other fiduciary laws cited as evidence that banks do indeed look out for investors. There’s precious little evidence to support the SEC’s arguments, other than an enforcement action a couple of years back against NationsBank, but this has had very little bearing on the Commission’s concerted view that securities laws must apply to what it sees as securities transactions.
The next step for this controversial rule will be some House hearings at which the bankers’ side gets fully aired and the SEC keeps its powder dry. As we have suggested, the SEC knows full well that its proposal makes keeping many traditional activities in a bank unworkable, and it is its intent to have these lines of business moved into broker- dealers. Thus, it is not likely to be moved by the heartfelt tales bankers will offer about the problems posed by the regulation. Most of these problems are, if not intentional, then collateral damage from the Commission’s point of view.