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Republicans Push Back Against Dodd-Frank

Republicans escalated their push to delay and defund the Dodd-Frank Wall Street reforms at a Senate hearing Feb. 17, as top regulators warned the Senate Banking Committee of a staff and funding crunch, sister news service Reuters reported.

The chiefs of major agencies that are writing hundreds of rules mandated by Dodd-Frank told the panel at a hearing that they need more money to carry out the law. The law includes provisions that largely prohibit banks from operating private equity funds and calls for most private equity funds to register as investment advisers.

Republicans on the banking panel are putting additional pressure on regulators, such as the Federal Reserve and the Treasury over Dodd-Frank, sending letters raising questions about whether they are following federal rule-making procedures. A failure to abide by these guidelines has in the past forced the Securities and Exchange Commission to backtrack on numerous rules. Republicans and the financial industry could win delays in implementation, Joseph Engelhard, analyst at advisory firm Capital Alpha Partners, told Reuters. “More time will be needed,” he said.

However, the U.S. Federal Reserve on Feb. 9 denied requests from financial industry players to give them more leeway in the time they have to comply with the Volcker Rule. The Volcker Rule becomes effective one year after regulators finalize a rule putting it into practice or July 21, 2012, whichever is earlier. Companies subject to the rule then have two years from that date to conform with the Volcker provisions but they can seek three one-year extensions if the Fed determines this “would not be detrimental to the public interest,” Reuters reported.

Federal Deposit Insurance Corp. Chairman Sheila Bair also offered some insight during the Feb. 17 hearing into her inclinations about which non-bank financial companies, such as hedge funds and insurers, should be designated as systemically important firms that would be subject to tighter oversight by the Fed under Dodd-Frank, Reuters reported.

Regulators are still deciding which firms should be tagged in this way and the criteria to be used in selecting them, other than the obvious measurement of sheer size. “It is interconnectedness more than anything,” Bair said. “If you fail, what else happens? Who else gets hurt? … There will be some gray areas. At least in terms of resolution planning I would err on the side of inclusiveness.”

It’s unclear if she would consider private equity firms cable of such risks.