[Congressional Record Volume 140, Number 45 (Thursday, April 21, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 21, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
    COMMISSION ON INTERNATIONAL COORDINATION OF FINANCIAL REGULATION

  The SPEAKER pro tempore. Under a previous order of the House the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Madam Speaker, today I have introduced legislation 
entitled the ``Commission on International Coordination of Financial 
Regulation Act, H.R. 4261.'' This legislation is the third component of 
my five-part strategy I have developed for addressing important 
domestic and international financial issues confronting our Nation.
  As chairman of the Committee on Banking, Finance and Urban Affairs, I 
have grown increasingly concerned about the growing instability in the 
international financial system and the lack of a coordinated 
international approach to dealing with issues that affect the world's 
financial system.
  New communications technology, the growth of exotic financial 
instruments, the increasing number of global corporations, expanding 
trade, and a worldwide recognition of the benefits of free markets have 
resulted in a rapidly expanding and increasingly integrated world 
financial system. But on the flip side of unprecedented opportunity is 
unprecedented risk; and the responsibility of governments is to keep 
risk within acceptable limits.
  While the volume of transactions occurring in the international 
financial system is growing exponentially, regulatory bodies in 
developed and developing nations alike, strapped by spending 
limitations, have struggled to keep pace with all this innovation.
  In addition, while ongoing efforts to coordinate international 
financial policies exist, these initiatives are tentative, fragmented, 
exclusive and they are insufficient to deal with the potential systemic 
risks facing the world financial system.
  A recent Congressional Research Service report supports my position:

       Capital markets around the globe have become so 
     interdependent that there is a possible series of disruptive 
     events which has the formidable potential of rapid 
     transmittal, placing and entire financial structure at risk 
     of severe distribution or even failure. Authorities recognize 
     this interdependence, but in spite of the perceived danger of 
     systemic risk, central banks and other regulators have been 
     slow to move preventative measures beyond the talking stage.

  The primary reason I am introducing this legislation is to ensure 
that the United States takes a leadership role in promoting sound 
international financial regulation and supervision of financial 
services. It is long past time that this topic was elevated to the 
highest levels of government. It is imperative that all the nations 
that reap the benefits of participation in the international financial 
system band together to address the problems facing the system. The 
United States must take a leadership role in making that goal a 
reality--after all, as the world's biggest economy and financial market 
place, we have the most to lose if the system spins out if control and 
crashes.


                            commission bill

  Last week I introduced derivatives legislation, which in part, deals 
with the issue of greater international regulatory cooperation. H.R. 
4170 requires the Secretary of the Treasury to convene a G-10 study of 
international regulation and supervision of derivative activities.
  The legislation I am introducing today, the ``Commission on 
International Coordination of Financial Regulation Act,'' recognizes 
that derivatives are just one part, albeit a particularly sensitive and 
fast-changing one, of the many risks facing the international financial 
system.
  While our top priority should be greater international coordination 
of derivatives regulation and supervision, we cannot ignore other 
pressing international regulatory issues. I have introduced the 
Commission bill in order to address other pertinent international 
regulatory matters. Nor can we ignore the fact that today's integrated, 
speed-of-light financial markets must have some kind of international 
standards and uniform regulations.


                          Goals of Commission

  The Commission has several major goals. First, the United States must 
take a leadership role in fostering a greater understanding of the 
current international financial regulatory and supervisory regimes that 
govern financial services and evaluate the effectiveness of those 
regimes.
  It is imperative that the United States take this course because as 
the world's leading economy and capital market, we have the most to 
lose from problems adversely affecting the workings of the world 
financial system.
  Second, the United States should lead the way in developing new, more 
inclusive mechanisms to promote coordination of financial service 
regulation and supervision. Whether the issue is banking, securities, 
or accounting standards, regulators around the globe have begun to 
establish mechanisms to coordinate their approaches to regulation and 
supervision. Unfortunately, participation in these efforts is not all 
inclusive, nor do the different industries attempt to coordinate their 
approaches to similar problems.
  The Commission will be charged with making recommendation to develop 
more inclusive mechanisms for improving cooperation among the world's 
financial regulators, because this must be done and it must be done 
sooner than later.
  Another goal of the Commission is to evaluate the feasibility of 
establishing a single mechanism to coordinate international financial 
regulation. Establishing a single body to coordinate financial 
regulation does not mean that the United States would have to lower its 
standards to those of other countries.
  The United States should strive to have its approach to regulation 
adopted based solely on merit--if U.S. regulatory ideas are superior we 
must see that they prevail. We need to preserve the best aspects of our 
regulatory regime, and where necessary, we should not be afraid to 
adopt useful regulatory and supervisory initiatives of other nations.
  I feel a vast majority of world's nations would support establishing 
a common ground for approaches to regulating and supervising financial 
services. A recent CRS report supports my idea of establishing a single 
international regulatory body. The CRS concluded:

       Even a methodical and unambiguous international system for 
     coordinating regulatory efforts would be a mark of progress.

  The world's financial system is growing by leaps and bounds and there 
is a clearly urgent need for a coordinated approach to regulation and 
supervision. We have already developed this type of organization to 
handle issues of international importance. For example, in 1945 we 
established the International Monetary Fund as the world's monetary 
authority. We established the General Agreement on Trade and Tariffs 
which coordinates international trade issues. And don't forget the 
United Nations.
  While some question the effectiveness of such forums, they serve a 
valuable function in the world political and financial scene. They 
enhance cooperation and foster a far greater understanding of the issue 
before them. We need a similar international body to promote more 
efficient world financial regulation and supervision. In a rapidly 
changing world we must have a clear vision about how to manage its 
risks--otherwise its opportunities will escape us.


                     european parliament concerned

  I note with interest that these same concerns are echoing from across 
the Atlantic. On December 15, 1993, the European Parliament passed a 
``Resolution of International Monetary Capital.'' This resolution 
expressed grave concerns about the lack on international coordination 
as it applies to financial regulation including tax regimes and 
derivative products regulation.


            Derivatives Prime Example of Lack of Cooperation

  The current commotion over derivatives is a prime example for the 
need for greater international regulatory cooperation and it serves as 
a prime example of the problems with our current system.
  This issue is addressed in my derivatives bill which directs the 
Secretary of the Treasury to convene a meeting of the Group of Ten [G-
10] Ministers and Governors to develop a plan for a study to examine 
the adequacy of the international regulation and supervision of 
derivative products.
  In 1993, the G-10 undertook a similar initiative to the one I am 
proposing in the derivatives bill when it conducted a study and issued 
a report to the G-10 Finance Ministers and Central Bank Governors on 
the turbulence in the foreign exchange markets. The illuminating study 
was called, ``International Capital Movements and Foreign Exchange 
Markets,'' and it helped the world's major financial regulators better 
understand the turbulence in the foreign exchange markets.
  The lack of coordination among regulators is striking. The U.S. bank 
regulators attempt to address the issue of international coordination 
through the Basle Supervisory Committee. The problems with the Basle 
Accord is that membership in the committee is severely limited to the 
top industrialized nations, it has no enforcement authority, and it 
covers only banking.
  Meanwhile, the U.S. Securities Exchange Commission adopts an entirely 
different approach to international regulation. The SEC addresses the 
issue by negotiating bilateral accords with our major capital markets 
partners. The recent United States-United Kingdom accord on derivatives 
is a prime example of this strategy. Unfortunately, such agreements are 
limited to securities issues, there is little coordination with bank 
regulators and most nations do not have an international accord with 
the United States governing securities regulation and supervision.
  Efforts to develop international accounting standards, the keystone 
of all financial transactions, are also lacking. Membership in the 
international accounting standards setting body is very limited, and 
the process of setting standards proceeds at a snails pace.
  Because of these shortfalls and more, there is a pressing need to 
develop mechanisms to improve international regulation and supervision 
of financial services. In order to achieve that goal the Commission 
will study and make recommendation on the following issues.


                            Issues to Study

  First, the Commission should identify the various regulatory entities 
and mechanisms that are currently used to regulate and supervise 
international capital markets. At present there is no inventory of 
entities involved in financial regulation.
  A fundamental first step to understanding international financial 
regulation is to identify the entities that play a role in regulating 
financial markets. The Commission should identify the players and their 
approach to regulating banking, securities, insurance, accounting 
standards, payments mechanisms, et cetera.
  Once the players and their approach to regulation and supervision are 
identified, the Commission can begin to evaluate the effectiveness of 
their approaches. The Commission will then make recommendation on 
improving regulation and supervision.
  A second important issue for the Commission to study is the current 
mechanisms used to coordinate financial regulation and the 
effectiveness of those approaches.
  A third topic to study is the mechanisms that governments currently 
employ to manage meltdowns or panics in international capital markets. 
There is currently a lack of information on this issue because there is 
little in the way of a formal mechanism for coordinating a response to 
a financial emergency. In effort, the safety of the world financial 
system is left to ad hoc, Band-Aid, patchwork efforts.
  Another Commission topic will be to identify the various means 
countries use to enforce capital market laws and regulations, the 
adequacy of cooperation among regulators in taking enforcement actions, 
and the means to improve global enforcement.
  Large differences in the operations of the world's major clearing and 
settlement systems, in terms of both efficiency and risk, pose a clear 
and present threat to the stability of the international financial 
system. The Commission will analyze the world's major clearing and 
settlement systems, the difference among those systems in terms of 
volume, risk and efficiency, and evaluate the impact each system has on 
the stability of the world's payments/settlements system. The 
Commission will also identify ways to improve coordination among the 
systems, including programs to raise the quality of the weaker systems.

  Finally the Commission will study the growth in financial assets 
directed through off-shore tax havens. In order to understand impact of 
these flows on the world financial systems, the Commission will 
identify off-shore tax havens, their function in the world financial 
system, the reasons for their growth, and the necessity of restricting 
their growth.
  We must learn more about how off-shore tax havens impact the 
operation of the financial system from a standpoint of their potential 
effect on stability, and to evaluate their cooperation with world 
regulatory, supervisory and enforcement mechanisms. The Commission 
should also study off-shore banking centers from the standpoint of 
fairness to other members of the international financial system.


                               conclusion

  Madam Speaker, I hope that you and other Members of this body will 
recognize the problems that I have raised here today, and I urge 
Members to co-sponsor this legislation so that our Government can 
provide the leadership necessary to develop thoughtful solutions to 
these problems.
  Instead of waiting for catastrophe to strike, we should show American 
leadership by taking an aggressive stance in ensuring better regulation 
and supervision of international financial services. My Commission will 
play an integral role in achieving that goal and is worthy of your 
consideration.

 Summary of the Commission on International Coordination of Financial 
                       Regulation Act, H.R. 4261


                           purpose of the act

       To establish a Commission to ensure that the U.S. takes a 
     leadership role in improving the effectiveness of 
     international regulation and supervision of financial 
     services and enhancing coordination among the world's 
     financial regulators.


                        duties of the commission

       The Commission will achieve its purpose through conducting 
     its business as an advisory committee under the Federal 
     Advisory Committee Act. Issues to study are:
       1. Identify the various regulatory entities and mechanisms 
     that are currently used to regulate and supervise 
     international capital markets.
       2. Identify mechanisms that governments currently employ to 
     manage international capital market instability.
       3. Appraise the adequacy of the cooperation between the 
     various regulatory entities and mechanisms and propose 
     solutions for improving cooperation including the feasibility 
     of establishing a single mechanism with responsibility for 
     coordinating international regulation.
       4. Identify the various means countries use to enforce 
     capital market laws and regulations, the adequacy of 
     cooperation among regulators in taking enforcement actions, 
     and the means to improve global enforcement.
       5. Analyze the world's major clearing and settlement 
     systems, the difference among those systems in terms of 
     volume, risk, and efficiency, and evaluate the impact each 
     system has on the stability of the world's payment and 
     settlements systems. Identify ways to improve coordination 
     among the systems, including programs to raise the quality of 
     the weaker systems.
       6. Identify all so-called ``offshore tax havens,'' their 
     function in international capital markets, the reasons for 
     their growth, and identify, if warranted, steps to curb their 
     growth.


                         Commission Membership

       The Commission will consist of fifteen (15) members who 
     shall serve for the duration of the Commission with the 
     Chairperson being designated by the President from those 
     members who were appointed.
       The Commission shall be made up of:
       Chairman of the Board of Governors of the Federal Reserve 
     System or the Chairman's designee;
       Secretary of the Treasury or the Secretary's designee;
       Chairman of the Securities and Exchange Commission (SEC) or 
     the Chairman's designee.
       Six members appointed by the President;
       Three members appointed by the Speaker and the minority 
     leader of the House of Representatives, with not more than 
     two being of the same political party; and
       Three members appointed by the majority leader and the 
     minority leader of the Senate, with not more than two being 
     of the same political party.
       The Commission shall appoint a director, who will serve on 
     a full-time basis, to conduct the administrative 
     responsibilities of the Commission.


                        Powers of the Commission

       The Commission shall have the authority to hold hearings, 
     secure information from any department or agency and request 
     the head of any department or agency of the United States to 
     furnish information to the Commission.


                        Report of the Commission

       The Commission shall submit a final report containing a 
     detailed statement of its findings and conclusions, along 
     with recommendations for legislative and administrative 
     actions, to the President and the Congress before the end of 
     a 18-month period. The Commission shall terminate 30 days 
     after submitting the report.


                    Authorization of Appropriations

       An amount not to exceed $2,000,000 shall be appropriated 
     for the Commission to carry out its duties.

     

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