WASHINGTON — Lawmakers could be forgiven if they seemed more frustrated at the end of a wide-ranging Senate Banking Committee hearing than at its start Thursday.
The two-hour session touched on virtually every major financial services topic under the sun — including interchange restrictions, systemic risk designations, and mortgage servicing standards — but resolved little.
Indeed, what banking and markets regulators said sparked more concerns, not fewer.
Will interchange fee restrictions hurt community banks? Yes, they could even cause some to fail, Federal Reserve Board Chairman Ben Bernanke told lawmakers, but he implied there was little he could do to avert that absent Congressional action to delay or reopen the Durbin amendment.
Will the Obama administration nominate a slate of candidates to replace vacancies at several critical agencies? Yes, soon, Treasury Deputy Secretary Neal Wolin said, but his response was just a stock answer administration officials have given for months.
Finally, how will regulators identify firms whose collapse would damage the country's economy? Nearly 10 months after Dodd-Frank was passed, the answer from the collection of regulators tasked with doing just that was effectively: "We're still trying to figure that out."
To be sure, many of the issues are up to the Congress or the administration to solve. A case in point was Sen. Jon Tester's questions whether community banks could be hurt by the Durbin amendment to limit interchange fees on debit cards despite an ostensible exemption for financial institutions with less than $10 billion of assets.
Regulators agreed that banks — and consumers — could be damaged by the amendment.
"We're still not sure whether it will work," said Federal Reserve Board Chairman Ben Bernanke, referring to the exemption for small institutions. "There are market forces that would work against the exemption.… Well, it's going to affect the revenues of the small issuers and it could result in some smaller banks being less profitable or even failing."
Federal Deposit Insurance Corp. Chairman Sheila Bair took it a step further, saying consumers will likely be harmed.
"I do think this is going to reduce revenues at a number of smaller banks, and they will have to pass that on to customers in terms of higher fees, primarily for transaction accounts," she said.
But Bair noted that it was not an issue regulators could resolve. Congress passed the Durbin amendment last year as part of Dodd-Frank and continues to debate a Tester bill to delay the interchange fee rule while regulators study the issue.
Noting that small banks will be harmed, Bair asked, "Is that the result Congress wanted?"
"You need to determine that, but I think that is what's going to happen," she said.
Bank regulators, too, were not on the hook for ongoing questions about why President Obama has yet to nominate candidates for several key jobs, including the heads of the FDIC, Office of the Comptroller of the Currency, Office of Financial Research and the Consumer Financial Protection Bureau.
Sen. Mark Warner, D-Va., criticized the administration for its failure to nominate someone to head the newly created Office of Financial Research, which he said is critical to helping determine which firms pose a systemic risk.
Wolin, the sole administration representative testifying before the panel, offered the same answer he and others have given for months — a nomination to that and other offices would be forthcoming shortly.
"I expect, you know, the president will make a nomination for that important job soon," Wolin said.
But Warner lightly rebuked Wolin.
"It's been 11 months. We need a nominee," he said.
But Democrats also took the opportunity to hammer Republicans for threatening to hold up a CFPB nominee until structural changes are made to the agency, and referenced hints that GOP lawmakers may hold up all financial services nominees if they do not get their way.
"We need strong nominees who will not be afraid to take bold steps to prevent a new financial crisis," said Sen. Sherrod Brown, D-Ohio. "But if qualified nominees for these important positions are blocked, it will increase the likelihood we have another AIG or Lehman brothers. I'd urge everyone on the committee to remember what happened to the financial system and the economy three years ago, and that this is serious business and shouldn't be politicized."
Regulators warned that if the agencies are left with only acting directors, it will hurt their ability to make decisions.
"The leadership does set direction and tone, and I think it's important to have highly qualified people at the heads of these agencies," Bernanke said. "That being said, of course, the Senate has to do its duty of advise and consent and ensuring that these are qualified people. But I hope there will not be unnecessary delays and politically motivated blockages that prevent those qualified people from undertaking their duties."
Regulators did face tough questions about their lack of obvious progress on a key element of regulatory reform — identifying and regulating systemically important institutions.
"Unfortunately, the council has not yet released for public comment the detailed rules on how they will designate firms," said Sen. Richard Shelby, the lead Republican on the panel. "Instead, the council has issued proposed rules that merely restate the broad statuary parameters. As a result, there is a great deal of confusion about how the council will proceed with its rulemaking. This has created uncertainty in our markets as firms are unsure which types of activities will cause them to be subject to systemic risk regulation."
Regulators said they plan to issue a proposal this summer on designating systemic risk, but acknowledged that there would be no clear formula provided. "While I think we can provide more information in terms of metrics and criteria, I don't think that we can provide a exact formula that will apply mechanically, without any application of judgment," Federal Reserve Board Chairman Ben Bernanke said. "I think ultimately we're going to have to look at a whole variety of issues which cannot always be put into a numerical metric."
Bair made it clear she has been pushing for greater clarity.
"It's important to get public comment and to provide more clarity and hard metrics," Bair said. "That said, I would agree with Chairman Bernanke, I don't think we can provide complete bright lines. There will need to be some area for judgment. But clearly we can do a better job than we've done so far in getting more detailed metrics out."