In a morning press conference, President Barack Obama rounded out the team that will play a big hand in revamping financial services regulation over the next several years.
As expected, he nominated Mary Schapiro, the head of the Financial Industry Reglulatory Authority (FINRA), the industry?? self-regulatory body, to head the Securities & Exchange Commission. He named Gary Gensler, the former undersecretary of the Treasury for Domestic Finance in the last two years of the Clinton Administration and a long-time Goldman Sachs executive, to head the Commodity Futures Trade Commission, which has jurisdiction over much of the regulated derivatives market. After leaving Treasury, he was a top adviser to Senator Paul Sarbanes and was one of the key authors of the Sarbanes-Oxley legislation, passed in the wake of the accounting scandals of the early 2000s to bring greater oversight to financial reporting and governance.
During the primaries, Gensler was a top economic adviser to Hillary Clinton, then switched to Team Obama for the general election. One of his key tasks there: building up an extensive network of business executives who threw their support ?both money and advice — to the President-elect. The public backing of such top executives as Warren Buffett and Google’s Eric Schmidt was seen as key to damping down concerns from other executives about whether Obama would be too liberal or too protectionist, and take positions on trade or other areas that might be harmful to business.
Gensler and Schapiro will undoubtedly be working closely together: They both will sit on the President's Working Group on Financial Markets, which will likely be the proving ground for one of the big issues the new administration faces as it tried to create a more effective regulatory regime: whether to merge the two agencies, as many in the investment community believe is needed. A blueprint for regulatory reform issued by Treasury Secretary Hank Paulson earlier this year called for the two to be joined so that the same regulators can look at derivatives and equities markets as a whole.
Both agencies have come under severe criticism in the wake of the financial meltdown. The SEC, particularly given recent revelations of its failure to spot trouble at the investment firm run by Bernard Madoff, is widely seen as needing an overhaul. The CFTC, in the meantime, has done little to rein in the largely unregulated trading in derivatives that have been a core problem in the crisis (though at least some of that blame lies with Congress, which exempted huge swaths of the derivatives market from regulation altogether); indeed, along with its members, it has often fought off efforts to force more controls on derivatives trading.
That's one reason Wall Street has backed keeping the agency separate from the SEC -- and one reason that Team Obama is likely to disagree. Still, sorting through the new regulatory policies for their own sake, never mind the turf battles, will not be simple. Schapiro and Gensler have plenty of work ahead of them -- and if they succeed, one of them could be out of a job by the time they finish.
Obama also named adviser Dan Tarullo to an open spot on the Federal Reserve Board, a perch from which he, too, will likely play a big role in revamping the regulatory system. A Georgetown law professor and well-known expert in international law and economics who was responsible for coordinating international economic policy under Clinton, Tarullo has been advising Obama on trade and other economic issues since early in the campaign.
He was widely rumored to be a candidate to be Obama's Trade Representative, but he also recently wrote a book on international financial regulation, Banking on Basel, in which he argued for the need to dramatically transform the regulation and supervision of financial institutions. More background that will come in very handy in the debates ahead.