The Securities and Exchange Commission and the Federal Reserve will exchange more information and cooperate across a number of sectors under a memorandum of understanding that the heads of the two agencies signed yesterday to help prevent a failure of a large financial firm that could harm the economy.
Under the agreement signed by SEC chairman Christopher Cox and Federal Reserve Board chairman Ben Bernanke - which comes after a March run on Bear, Stearns & Co. pushed the company to the brink of bankruptcy and led to its sale to JPMorgan - the Fed will get more information on securities firms' capital and liquidity and the SEC will receive more data on banks' financial health as it relates to securities brokerages.
The MOU essentially formalizes existing cooperative arrangements between the SEC and the Fed and covers a number of areas of mutual interest between the two entities, including anti-money laundering, bank brokerage activities under the 1999 Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industry, and the regulation of so-called transfer agents.
The agreement also is intended to augment the voluntary monitoring of securities firms' capital and leverage by the SEC under its Consolidated Supervised Entities Program as well as the presence of Fed examiners at those firms since the spring.
"It formalizes and strengthens the ongoing cooperation between our two agencies to enhance the stability of the financial system," Bernanke said in a statement. "I look forward to continuing this productive collaboration with chairman Cox and his staff."
"Years ago, when the dividing lines between commercial and investment banking were bright, the high level of coordination we are establishing today was not a priority for the U.S. government," Cox said. "But today, the interconnectedness of mortgage and lending markets, credit derivatives, securitizations, and counterparty relationships requires the U.S. government to adopt a more coherent and coordinated approach."
In a statement, Senate Banking Committee chairman Christopher Dodd, D-Conn., noted that the MOU does not grant any new authority to either agency and does not affect the ability of Congress to oversee regulated financial institutions and markets.
"I am pleased that the MOU seeks to achieve its important objectives while leaving consideration of any broader reforms to our financial regulatory landscape to Congress- issues that the Senate Banking Committee will begin to examine in greater detail over the coming weeks and months," Dodd said.
House Financial Services Committee chairman Barney Frank, D-Mass., plans to start a series of hearing Thursday that will examine financial market regulatory restructuring, a topic that comes in part because of the Bear Stearns collapse.
