Sarbanes grills Brickell over Ofheo nomination

Senator Paul Sarbanes, ranking member of the committee, said Brickell’s 25 years at JP Morgan and his lobbying activities on behalf of the bank “raised serious questions … whether he’s the right person for the position at this time.” Sarbanes quoted from a Washington Post editorial, which read in part: “the Bush administration's choice to take over at Ofheo strikes us as a potential step in precisely the wrong direction. The nominee … has a long track record of opposing government regulation of financial services and leaving most of the work to market forces.”

Sarbanes asked Brickell if he still believed, as he said in a 2000 letter to Ofheo, that the GSEs should be allowed to use internal models to set regulatory capital – a position Ofheo rejected in favour of using its own model. Brickell said he was merely trying to put forward some helpful ideas at the time on best practices. He added: “A rigid regime is not a tough regime. It gives [regulated entities] opportunities for regulatory arbitrage, which thwarts the purpose of the capital rules.”

Sarbanes also noted that Brickell opposed the passage of US fair value derivatives accounting standard FAS 133, and asked Brickell if he still opposed it. Brickell responded that he would enforce it as the “law of the land”. But Sarbanes was not satisfied; he pressed Brickell for an answer on whether he thought FAS 133 was a good or bad rule. “Sir, I don’t think it’s open to question by the director of Ofheo,” Brickell said. “I think it’s a great rule because it’s part of GAAP.”

But Sarbanes remained unsatisfied: “We had another nominee before us that never got confirmed because she said she did not have a view on the appropriate regulatory framework. Most [potential regulators] don’t come in with that attitude – they have a role in forming the regulation, so it’s important to know your position on the issues.”