Highlights: Senate banking panel hearing with regulators

WASHINGTON (Reuters) - The following are highlights of a Senate Banking panel hearing on the Dodd-Frank financial reform law with Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp Chairman Sheila Bair, Securities and Exchange Commission Chairman Mary Schapiro, Commodities Futures Trading Commission Chairman Gary Gensler and acting Office of the Comptroller of the Currency head John Walsh.

> For a text of Bernanke's testimony, see: http://www.federalreserve.gov/newsevents/testimony/bernanke20110217a.htm

BAIR ON INTERCHANGE FEES AND SMALL BANKS:

"I don't know if this will be dealt with by Congress, but what we are planning to do is work within the regulatory framework to see if there is greater discretion to provide better protection for community banks against discrimination by networks. I do think this is a real issue and could have an adverse impact."

WALSH ON PENALTIES IN MORTGAGE FORECLOSURE PROBE:

"We are getting to the point where we will be delivering documents to the banks and talking about civil...penalties, but the comprehensive settlement that we are talking about - this one will also involve violations under the purview of other agencies.

"We have not made decisions about the level of penalties. That is the next phase to come. We will be discussing that with the Federal Reserve and there will be penalty at the holding company and servicer levels."

BAIR ON DETERMINING WHICH NON-BANK FINANCIAL FIRMS ARE SYSTEMIC:

"It is interconnectedness more than anything. If you fail, what else happens? Who else gets hurt? And it may be that we need to do a type of 2-step process so that we're based on simple metrics based on size, counterparty exposure. Take it to a second level and ask those entities to do what is called a credit exposure report in title II, and basically do an analysis, do a scenario ...

"There are some that will be obvious and that's why we need to go over there in advance to have prudential standards to have them start reducing any concentrations they might have that would have broader collateral impact. There will be some gray areas. At least in terms of resolution planning I would err on the side of inclusiveness."

BERNANKE ON INTERCHANGE:

"It is possible the exemption will not be effective in the marketplace."

"There is some risk that exemption will not be effective, and that is the interchange fees available to smaller institutions will be reduced to the same extent we would see it at larger banks."

"The statute limits the interchange fee to the incremental costs associated with individual transactions, which does not cover the full cost. It includes some fixed costs associated with setting up a debit card program, for example.

"So it is possible some of those costs would get passed on to consumers in some way, for example, a charge from a debit card."

GENSLER ON BUDGET PROBLEMS:

"It's a little bit daunting to ask for more money for this agency at this time but I really do think this a good investment for the American public to avoid a crisis like in 2008."

SCHAPIRO ON HOW FLAT BUDGET IS AFFECTING THE sec:

"With respect to our current core functions we are feeling the pressure of operating under a continuing resolution."

"We have delayed very significant technology problems that would help bring the SEC's technology up until at least this century, not this year."

RANKING COMMITTEE REPUBLICAN RICHARD SHELBY:

"The Dodd-Frank party is over. Unfortunately, our economy is now preparing to pay the tab."

"The work required to implement these rules is staggering. For lobbyists, lawyers and government bureaucrats, Dodd-Frank is proving to be a gold mine. For the rest of us, however, it means more red-tape, more government, fewer choices and higher fees."

COMMITTEE CHAIRMAN TIM JOHNSON ON DODD-FRANK:

"The Committee's oversight will seek to ensure that the letter and spirit of the new law are being implemented by the regulatory agencies, public comment on proposed rules is being appropriately solicited and considered, the new law is being enforced, legitimate concerns are recognized and addressed and that the regulators have the resources they need."

"A task of this complexity with such a global impact must be done with great care to avoid unintended consequences that could impair economic growth or send good paying jobs overseas. Our oversight agenda will make sure we stay on the right track."

WALSH ON PROBLEMS WITH FORECLOSURE PROCESS:

"These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole. By emphasizing timeliness and cost efficiency over quality and accuracy, examined institutions fostered an operational environment that is not consistent with conducting foreclosure processes in a safe and sound manner."

BERNANKE ON DODD-FRANK LEGISLATION:

"The Dodd-Frank Act addresses critical gaps and weaknesses in the U.S. regulatory framework, many of which were revealed by the recent financial crisis. The Federal Reserve is committed to working with the other U.S. financial regulatory agencies to implement the act effectively and expeditiously."