SEC Commissioner Gallagher's Speech: "Perils of False Narratives" (with Lofchie Comment)

SEC Commissioner Daniel M. Gallagher delivered a speech before the U.S. Chamber Center for Capital Markets Competitiveness addressing what he believes to be false assumptions underlying the Dodd-Frank Act. Commissioner Gallagher asserted that the Dodd-Frank Act has failed to address crucial issues, such as the reform of Freddie Mac, Fannie Mae and money market mutual funds, as well as the inadequacies of the short-term funding model of banks that continue to be too big to fail. Commissioner Gallagher also stated that the Act fails to eliminate the redundancy of having regulators share jurisdiction over substantially similar markets and products.

In addition, according to Commissioner Gallagher, rushed and inadequate rule proposals are pushed out in the attempt to meet congressional deadlines, inevitably leading to final rules that lack substantive quality. The Commissioner used the Volcker Rule to further highlight and discuss the ways in which the SEC should instead focus on addressing mandates in the JOBS Act, and the basic "blocking and tackling" issues which affect investors the most.

Lofchie Comment: I am always encouraged when I see leaders at the regulatory agencies who are as critical (or almost as critical) of Dodd-Frank as I am, and who are able to be critical in more measured tones than I. Thus, I always put such speeches first in the newsletter.While I have little of substance to add to Commissioner Gallagher's remarks, I am going to add another concern. I have just returned from a visit to the firm's clients in Asia and one of the things that worried me most as an American citizen (and as a financial industry lawyer) is that Asian financial entities (both buy-side and sell-side) expressed reluctance to do business with U.S.-based swap dealers or to risk subjecting themselves to U.S. jurisdiction. If one believes that it benefits the U.S. economy to be the world's financial center, and that, conversely, it will injure our economy to lose that status, the fact that non-U.S. firms are afraid of doing business in the United States means bad things for our economy, both in the short and the long term.

View speech in full here (links externally to SEC website).