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SBC Nomination Hearing

Senate Banking Committee

Nomination Hearing

Thursday, May 19, 2022

Topline

  • The hearing focused on issues regarding the Securities Exchange Commission (SEC) rulemaking agenda and process, bank mergers, S. 2155, bank tailoring, the Community Reinvestment Act (CRA), competition, market manipulation, and cybersecurity.
  • In his opening statement, Ranking Member Patrick Toomey (R-Pa.) discussed his concern of financial regulators increasingly straying into contentious political issues outside of their mandates.
  • Republican pushback centered on Barr’s opposition to S. 2155, which was a bank deregulatory bill that Congress enacted in 2018.
  • Barr was pressed on whether he supports tailoring, which is the idea that supervision should become tougher as banks get larger.
  • Lizárraga and Uyeda expressed their view on stakeholders having a meaningful opportunity to comment on all SEC proposals, saying that adequate comment periods are critical in order to make informed decisions.

Witnesses

Opening Statements
Senator Jon Tester (D-Mont.)

In his opening statement, Tester began by saying small business and main street powers our economy. He said it is the job of Congress to support an economy that works. He discussed the role the nominee will have in supporting small business and the overall economy. Tester briefly discussed each nominees background and the importance of each role. He said the U.S. is facing challenges that are unique and unprecedented adding that it is important to put the needs of the country before any personal ideology. He concluded saying institutions must be fully staffed to meet the needs of the country.   

Ranking Member Patrick Toomey (R-Pa.)

In his opening statement, Toomey said the nominations are a reminder of the importance of financial regulators abiding by their respective regulatory mandates. He discussed his concern that financial regulators are increasingly straying into contentious political issues outside of their mandates and discussed the impact inflation is having on lower income families.

Testimony

The Honorable Michael S. Barr, Member and Vice Chairman for Supervision Designate, Board of Governors of the Federal Reserve System

In his testimony, Barr discussed his work within the financial system for the past twenty-five years, from his work at U.S. Department of State to his work as assistant secretary of the Treasury for financial institutions. Barr concluded saying if he is confirmed as Vice Chair for Supervision, he will be committed to ensuring that the financial system is robust and resilient.

Mr. Jaime E. Lizárraga, Member Designate, Securities and Exchange Commission

In his testimony, Lizárraga discussed the SEC’s mission to secure a prosperous financial future for working family.  He said he would approach the SEC’s mission through the eyes of working families like and work with other commissioners to make sure congressional mandates are robustly implemented. He concluded saying that our nation’s future prosperity depends on robust oversight of our capital markets.

Mr. Mark Toshiro Uyeda, Member Designate, Securities and Exchange Commission

In his testimony, discussed his practice of corporate and securities law as well as his time in public service.

Question & Answer

SEC Disclosure Rules

Sen. Jerry Moran (R-Kans.) asked if changes to disclosure rules would more than double the current costs of disclosures with an outsized impact on smaller companies. Lizárraga and Uyeda said yes. 

SEC Rulemaking Agenda

Thom Tillis (R-N.C.) asked how the SEC has the bandwidth and staff support to adequately access public feedback and implement proposed rules. Lizárraga said it is important for stakeholders to have a meaningful opportunity to comment on all proposals. Uyeda added that having adequate comment periods are critical in order to make informed decisions. Sen. Bill Hagerty (R -Tenn.) asked about the importance of evaluating how rules interact with one another before being proposed by the Commission. Lizárraga said as a general principle it is important adding that there should be an assessment of overlap and said he is committed to looking into the issue further. 

SEC Staff Accounting Bulletin 121 (SAB 121)

Sen. Cynthia Lummis (R-Wyo.) asked Uyeda about his thoughts on staff account bulletin No. 121. Uyeda said the bulletin was a staff position and not approved by a vote of the Commissioners. He also said there has been a tremendous amount of concerns raised regarding the bulletin adding that if he is confirmed he will review the bulletin and have a discussion with SEC staff. He said there is a process to follow when there is an amendment to a rule or a new rule and that those sorts of changes should go through notice and comment rulemaking. 

Crypto

Sen. Jack Reed (D-R.I.) asked Barr what his thoughts on cryptocurrency are. Barr said there are some advantages in technology, including crypto, which has potential economic benefits but also significant risks. He added that the risks depend on the use of the digital assets. 

Climate

Toomey asked Barr if the Fed is permitted to use its power to accelerate the transition to a lower carbon economy. Barr said the Fed’s authorities are limited. He added that the Fed must access risks to the financial system from all sources including climate but that the Fed should not be in the business of telling institutions who to lend to. Toomey asked if the Fed has the authority to use climate related stress test for the purpose of penalizing banks for lending to energy companies. Barr said the only purpose of the Fed’s scenario analysis should be to understand the risks that climate may pose to the financial system and work with financial institutions to measure those risks. 

Bank Mergers

Toomey if the Fed has the authority to impose a blanket moratorium on bank merges. Barr said he was not aware of any authority on a blanket moratorium on bank merges. Toomey asked if Barr agrees that regional bank mergers can increase competition in the banking industry by allowing them to compete with larger banks. Barr said bank mergers can have both positive and negative effects adding that bank mergers should be conducted based on evidence. 

Diversity and Inclusion

Sen. Robert Menendez (D-N.J.) asked Barr what steps he would take to improve minority representation in leadership roles at the Fed. Barr said diversity, equity, and inclusion are important goals for the Fed to pursue adding that it is important to build a pipeline of individuals who can come in and start at senior level positions. Menendez asked Lizárraga and Uyeda if they would commit to improving diversity at the SEC to improve performance and benefit retail investors. Lizárraga said diversity and inclusion is a fundamental value of his. Uyeda added that he will commit to making sure there is diversity within the SEC.

Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155)

Steve Daines (R-Mont.), Tester and Tillis asked Barr about his view on the impact of S.2155. Barr said he supported aspects of the legislation in particularly the community banking provisions and amongst other protections for community banks. He added that he was concerned about parts of the bill which would decrease liquidity for larger banks. Daines asked Barr what his views are on regulatory tailoring. Barr said he supports regulatory tailoring. 

Bank Tailoring

Sen. Mike Rounds (R-S.D.) asked if tailoring rules based on size and risk profile is good for banks and if it applies to regional banks as well. Barr said tailoring is positive for regional banks. He added that the strictest rules must be made for the largest financial institutions and gradually less restrictive rules for less risky institutions. He stated that community banks should have very simple rules. Rounds asked if Barr would defend the use of the aggregation method and state-based system of insurance-based regulation. Barr said yes. 

Community Reinvestment Act (CRA)

Sen. Tina Smith (D-Minn.) asked Barr what his top priorities are in regards to Community Reinvestment Act (CRA) implementation. Barr said the CRA has played an important role helping banks serve their communities. He added that he would work with colleagues to understand the effects on the banking sector and get the rule in place expeditiously. Smith asked if the current economic conditions elevate the need to implement the CRA. Barr said yes. Sen. Mark Warner (D-Va.) asked Barr how he would address access to capital for underserved communities. Barr said Community Development Financial Institutions (CDFI), Minority Deposit Institutions (MDI), and other community banks play a critical role in expanding access to capital for underserved communities. He also said the Fed can play a critical role in supervision and regulation.  

Competition

Moran asked if competition amongst asset managers is good and if investment firms should compete to manage investors’ money. Lizárraga said there should be competition in all sectors of the markets. Moran asked if smaller firms with less than 500 billion dollars in assets should have the same opportunities as multi-trillion-dollar firms to list exchange traded products in order to compete and serve investors. Lizárraga said small issuers should be treated fairly just as large firms. Uyeda said consideration of competition is statutorily mandated adding that the SEC must also examine the regulatory impact on small entities. 

Market Manipulation

Sen. Catherine Cortez-Masto (D-Nev.) asked about market manipulation on social media and what role should the SEC take to curb it. Uyeda said the SEC has longstanding authority to pursue enforcement actions for market manipulation adding that using social media to manipulate prices is not new. Lizárraga said market manipulation negatively effects the securities market and that the SEC has an obligation to pursue all market manipulation.

Supplementary Leverage Ratio (SLR)

Rounds and Toomey asked Barr if he would commit to issuing a proposal to make sure banks are not penalized for holding risky assets. Barr said he would like to review the liquidity and capital in the financial system broadly first. 

Cybersecurity

Cortez-Masto asked Barr about his experience in data and cybersecurity. Barr said cybersecurity is essential to risks mitigation and risks management in the financial system adding that cyber risks are very urgent. He said the full financial system should work to stay ahead of the curve. He stated that he worked on cybersecurity during his tenure at the U.S. Department of Treasury where he oversaw the Office of Critical Infrastructure policy. Reed asked Lizárraga and Uyeda if cybersecurity is critical. Lizárraga said cybersecurity is essential. Uyeda said cybersecurity is a serious threat and the SEC has an obligation to ensure broker-deals and investment companies are making efforts to porrect against cybersecurity threats. 

Fed Independence

Tester asked Barr why the Fed’s independence is important. Barr said the Fed’s independence is long standing and critical to its effectiveness as a nonpartisan institution. He added that the Fed is an institution that must make independent judgments so that the markets know decisions are made solely on the evidence. Tester asked if it would be a mistake to allow politics to influence the nation’s monetary policy. Barr said if politics were to get involved in monetary policy it would dramatically reduce the effectiveness of what the Fed does and says. 

Inflation

Toomey asked Barr what he would do to get inflation under control. Barr said anything adding that inflation is far too high and is committed to bringing it down to the level of 2%.

 

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.