Libor case en­er­gizes Wall Street watchdog

The Pak Banker - - BUSINESS -

Months af­ter he ar­rived in Washington in 2009, Gary Gensler knew he had a big case. Hud­dled around his as­sis­tant's desk with a col­league, Mr. Gensler, then Wall Street's new­est reg­u­la­tor, lis­tened to a taped tele­phone call of two Bar­clays em­ploy­ees dis­cussing plans to re­port false in­ter­est rates. When the brief record­ing ended, Mr. Gensler re­al­ized the grav­ity of the wrong­do­ing.

"We need to make this case even more of a pri­or­ity," he told his col­league at the Com­mod­ity Fu­tures Trad­ing Com­mis­sion, Stephen Obie, who al­ready had been in­ves­ti­gat­ing Bar­clays for more than a year. The Bar­clays case has now thrust Mr. Gensler - and his on­ceob­scure agency - into the spotlight.

In June, the com­mis­sion reached a set­tle­ment with Bar­clays in the rate-ma­nip­u­la­tion case, which pro­duced the largest fine in the agency's nearly 40-year history. The deal is ex­pected to be the first of many, as Mr. Gensler's team leads a global in­ves­ti­ga­tion into rate-rig­ging at more than a dozen big banks.

It is a new role for the agency, the in­dus­try's small­est reg­u­la­tor. For years, it was viewed as the Rod­ney Danger­field of the reg­u­la­tory world, with a light touch and lit­tle re­spect.When the agency first opened the rate in­ves­ti­ga­tion in 2008, some banks dis­missed the reg­u­la­tor, telling it to nar­row the fo­cus to a par­tic­u­lar time pe­riod or trad­ing desk. Bar­clays ques­tioned whether the Amer­i­can reg­u­la­tor had the au­thor­ity to ex­am­ine a Bri­tish bank, ac­cord­ing to peo­ple with knowl­edge of the mat­ter.Now, Wall Street is tak­ing the com­mis­sion more se­ri­ously.

Along with the in­quiry into rate ma­nip­u­la­tion, the agency is play­ing a cen­tral part in sev­eral prom­i­nent in­ves­ti­ga­tions, ex­am­in­ing the blowup of MF Global and the multi­bil­lion-dol­lar trad­ing loss at JPMor­gan Chase. Mr. Gensler has also ag­gres­sively - some say ob­ses­sively - pushed the agency to adopt dozens of new rules un­der the Dodd-Frank law, the fi­nan­cial reg­u­la­tory over­haul.

"The change is night and day," said Rep­re­sen­ta­tive Bar­ney Frank, Demo­crat of Mas­sachusetts, the co-au­thor of the sweep­ing law that bears his name."It was a tooth­less agency," he said, but when "Gary be­came chair­man, he was very ag­gres­sive." The agency's re­vival stems from the wave of new reg­u­la­tion. Dodd-Frank, passed in 2010, greatly ex­panded the re­spon­si­bil­ity of the agency, stretch­ing its reach to the dark corners of the $300 tril­lion de­riv­a­tives mar­ket. Be­fore that, the agency over­saw the $40 tril­lion fu­tures busi­ness.

Mr. Gensler has po­si­tioned him­self as a chief ad­vo­cate of the law, ini­tially lob­by­ing law­mak­ers to close loop­holes and now over­see­ing the flurry of rule-mak­ing at his agency. Af­ter a long ca­reer at Gold­man Sachs and a stint in the Wall Street-friendly Clin­ton ad­min­is­tra­tion, the job has given Mr. Gensler a shot at re­demp­tion.

But Mr. Gensler and his agency have faced a steep learn­ing curve with the bu­reau­cratic and po­lit­i­cal ways of Washington.To win sup­port from fel­low reg­u­la­tors, Mr. Gensler has agreed to dial back some rules.

And while the agency's rule-writ­ing has out­paced other fi­nan­cial reg­u­la­tors, the trad­ing com­mis­sion has missed mul­ti­ple dead­lines for com­plet­ing the crack­down on de­riv­a­tives, a cen­tral cause of the 2008 cri­sis.

Mr. Gensler has also drawn the ire of Con­gres­sional Repub­li­cans, who say his com­mis­sion is over­step­ping its au­thor­ity. Some bankers have taken aim at the agency, say­ing its rules threaten prof­its. "No one likes their reg­u­la­tor right now, how­ever good they are, and Gary is good," said Eu­gene Lud­wig, head of the Promon­tory Fi­nan­cial Group and a for­mer bank reg­u­la­tor who knew Mr. Gensler from their days in the Clin­ton ad­min­is­tra­tion.The new iden­tity of the agency re­flects the per­sonal evo­lu­tion of its leader. A math whiz who grew up in a work­ing-class Bal­ti­more neigh­bor­hood, Mr. Gensler at­tended the Whar­ton School at the Univer­sity of Penn­syl­va­nia. Af­ter an 18-year ca­reer at Gold­man Sachs as a merg­ers and ac­qui­si­tions banker and later an ex­ec­u­tive, he joined the Trea­sury Depart­ment.

At the time, the depart­ment over­saw the broad dereg­u­la­tion of the same mar­kets Mr. Gensler now over­sees. In 2009, some lib­eral law­mak­ers stalled Mr. Gensler's nom­i­na­tion to the com­mis­sion, fear­ing that he re­mained a banker at heart.

Mr. Gensler, a fa­ther of three daugh­ters, agrees that he has yet to shake his pen­chant for deal-mak­ing. When ne­go­ti­at­ing over the word­ing of a rule, he still props up his socked feet on an em­ployee's desk, a habit com­mon to bankers. His ef­forts now, how­ever, are di­rected at re­form­ing the in­dus­try that once made him mil­lions.

"I think what we're try­ing to do is bring com­mon-sense rules of the road to this re­ally im­por­tant mar­ket­place," he said in an in­ter­view.As Congress de­bated Dodd-Frank, Mr. Gensler was a ubiq­ui­tous pres­ence on Capi­tol Hill, pres­sur­ing law­mak­ers to beef up the de­tails. The day the law be­came fi­nal, he stayed past 4 a.m. with Blanche Lin­coln, then a sen­a­tor from Arkansas, putting the fin­ish­ing touches on sev­eral pro­vi­sions."I told him that Dodd-Frank was his baby be­cause he la­bored with it for at least nine months," said Michael Dunn, a for­mer C.F.T.C. com­mis­sioner who works at Pat­ton Boggs. With the in­ten­sity of a long­time banker, Mr. Gensler has pushed his staff to fin­ish the rules promptly. He is an avid reader of the "Dodd-Frank Progress Re­port," from the law firm Davis Polk & Ward­well, a pub­li­ca­tion that tracks rule-writ­ing. Once, when he mis­tak­enly thought the pub­li­ca­tion failed to count a C.F.T.C. rule, Mr. Gensler phoned a lawyer at the firm to re­quest a cor­rec­tion.

A marathon run­ner and moun­tain climber, his fix­a­tion with speed has made him a brusque taskmas­ter at times.Last year, when a small earth­quake forced the agency to evac­u­ate its of­fices, Mr. Gensler ar­ranged a staff meet­ing at a cafe in the build­ing's lobby. The em­ploy­ees, he said, could not af­ford to lose an af­ter­noon of work.

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