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Capital Markets Chairman Also Schedules Hearing Date and Calls for Reform in the Wake of Ongoing Financial Market Unrest
WASHINGTON - Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, today released the responses he has received from key State and Federal financial regulators. In these letters, the regulators assess the ongoing problems in the bond insurance marketplace and outline potential implications for the financial services industry, municipal finance, and the broader economy. Chairman Kanjorski also officially scheduled a hearing of the Capital Markets Subcommittee to further explore these matters for Thursday, February 14.
"The comments of financial regulators about the problems affecting the bond insurance industry and the shortcomings of its current regulatory regime have convinced me of the real need to reform the oversight of this important sector of our financial system," said Chairman Kanjorski. "Because the problems created by unrest in the bond insurance markets go to the heart of our economy and the very vitality of municipal finance, we must examine these matters as soon as possible in a hearing before the Capital Markets Subcommittee."
In January, Chairman Kanjorski initiated an examination of the bond insurance industry, focusing on its strength, the resulting implications for the financial marketplace and municipalities of ratings downgrades, and the potential need for regulatory reforms. As part of the review, Chairman Kanjorski contacted primary financial regulators on January 23 seeking their input. In recent days, seven State and Federal regulators responsible for overseeing insurance, securities, and banking entities have replied with their assessments.
"In reviewing the responses of the State insurance regulators in New York, Wisconsin, and Maryland, as well as the current president of the National Association of Insurance Commissioners, I was impressed with their candor in evaluating the situation. These primary regulators also offered constructive ideas for how to pursue regulatory reform," commented Chairman Kanjorski. "Because we need to protect our national economy and the continued ability of municipalities to issue bonds at affordable rates, I am hopeful that going forward we will work together to put in place new protections and better oversight of the bond insurance industry. These reforms ought to reflect the realities of today's complex and integrated financial system."
Chairman Kanjorski is especially concerned about the effects of the recent decisions by ratings agencies to downgrade a number of bond insurers on municipal debt markets. States, counties, and localities often rely on bond insurance to lower their borrowing costs for building bridges, repairing roads, fixing schools, and easing budget constraints.
"In recent years, many bond insurers moved from their core business expertise of assuring municipal debt and began guaranteeing risky, complex structured finance products backed by subprime mortgages," added Chairman Kanjorski. "The recent bond insurer ratings downgrades as a result of exposures to this subprime debt, and the possibility of more reductions in the future, could have unfortunate consequences for municipal governments. We must, therefore, take action to protect our cities, towns, and boroughs from experiencing unnecessary costs and project delays."
In addition to State insurance regulators, Chairman Kanjorski received and released responses to his inquiries from the leaders of the Federal Reserve, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. In their replies, these Federal regulators assess the impact of the turmoil in the bond insurance marketplace on the entities that they directly regulate like commercial banks, investment banks, and broker-dealers.
Chairman Kanjorski concluded, "I have now reached out to the relevant regulators to open discussions about these serious matters and determine the most efficient and responsible manner to act. I look forward to working with all interested parties on these very important matters."
The Capital Markets Subcommittee hearing on bond insurance on February 14 will begin at 10:00 AM in room 2128 of the Rayburn House Office Building. Witnesses will be announced at a later date.
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Please click on the following links for copies of the replies received by Chairman Kanjorski from the National Association of Insurance Commissioners; the State of New York Insurance Department Part 1 and Part 2; the Wisconsin Office of the Commissioner of Insurance ; the Maryland Insurance Administration; the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; and the Securities and Exchange Commission Part 1 and Part 2 .
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