CRE Executives To Congress: The Problem With Dodd-Frank

WASHINGTON, DC-As Dodd-Frank continues its plod to full implementation, executives from a range of institutions, including CalPERS, the Investment Company Institute and the CRE Finance Council, came to Capitol Hill to provide testimony on its impact before the House Subcommittee on Capital Markets and Government Sponsored Entities.

For the most part, the testimony began with assurances to House members that the spirit of Dodd Frank was welcome--that is, reform of the financial system, as evidenced by the 2008 crash, has been recognized as necessary. Many then went on to warn about the unintended consequences that could occur from faulty execution.

Speaking on behalf of the Investment Company Institute, Thomas Lemke, EVP of Legg Mason & Co., told the subcommittee that the ICI concurs with the legislation’s broad goals, since a more resilient financial system will benefit all market participants. “But building this more resilient system is challenging and complex, and care must be taken to avoid unintended negative consequences,” he said. “That is why ICI, like other market participants, believes that how these Dodd-Frank provisions are implemented is of utmost significance.”

CREFC president Paul T. Vanderslice also iterated support for the legislation--and then went on to outline how it could wind up being more of a hindrance than help to commercial real estate funding. “We’re concerned that each individual regulation may be going beyond Congressional intent and, when these regulations are aggregated, the combined effect will curtail credit further than you intended,” he said.

He pointed to the Premium Capture Cash Reserve Accounts included in the proposed risk-retention regulations, as an example. Intended to bolster the retention regime, they could actually lead to restricted credit availability and increased borrowing costs, he said: “Investors also would be affected, as they will not have sufficient CMBS product to provide the risk diversification and yield needed to meet, for example, life insurance and pension benefit payment obligations.”

Speaking from the investor perspective Anne Simpson, senior portfolio manager and director of corporate governance at CalPERS, told Congress the pension plan likes much of the regulatory change under Dodd Frank. Her objections relate to the “unfinished business” of the act. The Securities and Exchange Commission, for example, has not finalized many of the rules related to rating agencies, she said.