WASHINGTON -- Rep. Edward Markey, D-Mass., said yesterday he plans to hold three hearings on derivatives beginning Tuesday that will, among other things, examine the adequacy of municipalities' risk management systems and derivatives disclosures to investors.
The hearings are to be held May 10, 19, and 25 by the House Energy and Commerce Committee's telecommunications and finance subcommittee, which Markey chairs.
Markey said in a prepared statement that he hopes the hearings "will allow us to better understand whether regulatory changes or legislative action are needed to respond to the new risks and opportunities created by derivative financial products."
The May 10 hearing is expected to provide an overview of the derivatives markets and will include testimony from three industry officials, including Gerald Corrigan, former head of the Federal Reserve Bank of New York, and Richard Breeden, former chairman of the Securities and Exchange Commission, a committee aide said.
Corrigan is now chairman of International Advisers, which is affiliated with Goldman, Sachs & Co. Breeden is chairman of Cooper & Lybrand's Financial Services Practice.
Dennis Weatherstone, chairman of J.P. Morgan & Co., is also scheduled to testify at the Tuesday hearing. Weatherstone chaired the derivatives study that was issued last year by the Group of Thirty, whose members are international financial experts.
The May 19 hearing will focus on the findings and recommendations of the long-awaited General Accounting Office report on derivatives, the aide said.
The GAO is expected to release the report on May 18.
Charles Bowsher, Comptroller General of the U.S., is expected to detail the report for the subcommittee at the hearing.
At the hearing on May 25, a panel of federal regulatory officials will discuss the GAO report and their oversight of the derivatives markets.
The officials include: Arthur Levitt, chairman of the SEC; Alan Greenspan, chairman of the Federal Reserve System's Board of Governors; Eugene Ludwig, the Comptroller of the Currency; Andrew Hove, acting chairman of the Federal Deposit Insurance Corp.; and Barbara Holum, acting chairman of the Commodity Futures Trading Commission.
Markey sent letters to the regulators asking them to testify about the following derivatives issues:
* The adequacy of internal controls and risk management systems of derivatives dealers and users, including municipalities, mutual funds, pension plans, or other institutional investors;
* The adequacy of the information that municipal governments, mutual funds, and other derivatives users disclose about their derivatives holdings to investors;
* Whether there are sufficient existing protections for investors or other end-users to ensure they are not being sold derivative products that are unsuitable for them.
* The potential for derivatives to contribute both to increased volatility and speculation in the stock and bond markets and to systemic risks in the financial markets overall. [Systemic risk is the risk that a derivatives crisis will snowball and have disastrous financial consequences for other markets.]
Markey also asked the regulators for their views on whether legislation or regulatory changes are needed to oversee the derivatives markets.
