Adult Supervision Re-emerges: Bush Proposal for Regulatory Overhaul
Well, well, well. This is startling news but the Bush Administration under Sec. Paulsen's leadership has proposed a broad overhaul of national financial regulation. Think about that for a minute - a strongly conservative President under the leadership of the ex-CEO of Goldman is not just beginning to re-think their regulatory approach but is putting a major proposal on the table that's the first major re-thinking since the Great Depression. And from what little I can see of the early sketches it's an extrordinarily profound, comprehensive and thoughtful proposal. More interestingly it's been worked on for over a year and largely in secret. The latter may be the most astounding part. But the case has certainly be made and the timing of the announcement couldn't be better.
You really need to pay attention to this one because, win, lose or draw, the Finance Industry, the Markets and the Economy will not be the same ever again.
And leave you with two key observations - that this passes in good form is in all our best interests. Whatever you can do to get behind it we'd suggest you do. Second - the last big bout of regulatory reform brought you SOX. The two are fundamentallly different cases, especially since this get's to the beating heart of our economy. Nonetheless SOX consisted of 1/3 really good business practice that companies should have been doing anyway but weren't. And 2/3 regulation by rule and inspection that resulted in difficult and expensive regulation but not necessarily reform. The big question here becomes not just policy but enforcement mechanism. Since this is just a quick note with much more to follow we've decided to share som old jottings of ours on thinking thru alternatives to regulatory reform. Please excuse the informalities and idiosynchracies. Dloadable file: "Notes on Regulatory Reform"
Meanwhile here's the jump off excerpt:
Bush Seeks Financial Regulation Overhaul The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies. The Fed would be given broad authority to oversee financial market stability. That would include new powers to examine the books of any institution deemed to represent a potential threat to the proper functioning of the overall financial system. The administration divided its recommendations into short-term goals that could be adopted quickly, intermediate recommendations and an "optimal" regulatory framework, which contains a radical restructuring of how the government supervises banks and other financial institutions. The recommendations are the product of a yearlong review that was begun in an effort to modernize the government's regulatory structure so that the country's financial services industries could better compete in a fast-changing global economy. The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry. The administration proposal would also consolidate the current scheme of bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks. The plan recommends that the Securities and Exchange Commission, which regulates stock trading, be merged with the Commodity Futures Trading Commission, which regulates futures trades for oil, grains and various other commodities. The plan would create a national regulator for the insurance industry, which is now largely governed by the states, and would create a Mortgage Origination Commission to try to address the abuses exposed in the current tidal wave of mortgage defaults. The role Federal Reserve Chairman Ben Bernanke and his colleagues have been playing to shore up the financial system would be formalized in the administration plan by giving Fed officials greater power to detect where threats might be lurking in the system.
If you're wondering whey we're such immediately strong advocates may we suggest reviewing either the archives on Fed and the Credit Market (Fed & Credit) , Credit Markets (CreditMarkets) or our key post summary on these issues in Key Posts. In a way just skimming the titles and first paragraphs may make our points for us.