Wall Street pros and experts react to President Obama's dramatic proposal to overhaul the financial regulatory system
The White House plan to overhaul regulation of the U.S. financial system is "a transformation on a scale not seen since the reforms that followed the Great Depression," as President Barack Obama said in a June 17 statement. Obviously, changes of the scale and scope proposed by the plan have engendered a broad spectrum of reactions in the financial community. Here is a sampling of commentary compiled by BusinessWeek on June 17:
Obama's new financial regulatory framework is pretty much as touted in the press, providing "new rules of the road" for the financial markets. The aim is to fetter greed and abuse without scrapping the current system and starting over from scratch. Highlights include new Fed authority to supervise large financial firms and holding companies, and the creation of an oversight council that will coordinate responsibility among the various agencies, along with a resolution authority for large interconnected financial firms. New standards for consumer protection, mortgage lending, the dismantling of the Office of Thrift Supervision, increased capital requirements, registration of hedge fund advisers, regulation of CDS and other derivatives are all part of the plan. Now comes the lengthy task of tweaking and diluting the proposals in Congress.
David Hirschmann, president and CEO, U.S. Chamber of Commerce Center for Capital Markets
Our evaluation of the Administration's plan is based upon its ability to solve three fundamental problems with our financial regulatory system: ineffective regulation, regulators that are not well coordinated, and regulatory gaps that missed significant problems that occurred in our markets.
While the Administration has made several positive recommendations, we're concerned that overall, the proposal simply adds to the layering of the system without addressing the underlying and fundamental problems. We can't simply insert new regulatory agencies and hope that we've covered our bases.
John Jay, senior analyst, Aite Group
Unintended consequences may arise from the incorrect discounting of how markets will respond to new regulations. The financial markets are global. As such, banking and financing business may very well migrate to regions with less stringent oversight. In seeking to safeguard the U.S. financial system, the Administration must take care not to put U.S. financial firms at a competitive disadvantage.
Ed Mierzwinski, consumer program director, U.S. PIRG
Too often, captive federal banking regulators have treated consumer protection as less important or even in conflict with their supposed primary mission to ensure the safety and soundness of financial institutions.… The President's proposal would streamline and dramatically improve the current splintered, ineffective federal financial regulatory system because the new agency would be required to make consumer credit protection its top priority.
Peter Morici, professor, Smith School of Business, University of Maryland
I have gone through the President's financial sector regulatory reform package. It is a huge bureaucratic overreach that will prove ineffective and too costly.
For example, the new systemic risk regulator is an interagency committee, which already informally exists, and the Fed. We all knew about the SIVs and what they were doing before the crisis, but no one saw a problem. It was not the lack of an agency or committee but foresight that caused us to let them go too far.
Similarly, most of what the consumer protection agency would accomplish is already in the works. The last thing the banks need is another dimension of regulation. We do need for the agencies like the Fed and FTC to do their jobs better, and that is already happening. Credit-card contracts and mortgage writing are being reformed.
The morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline. The trick is to get regulation right, not mound it like whipped cream on a banana split.
Duncan Niederauer, chief executive officer, NYSE Euronext (NYX)
We applaud the Obama Administration's proposal to overhaul the financial regulatory structure as a critical step toward restoring trust in capital markets. Regulatory reform must protect investors, close regulatory gaps, and enhance market transparency, while at the same time continuing to encourage the spirit of innovation that has fueled decades of economic growth, produced new products and services, and created jobs. Our regulatory system is vastly outdated, and we are encouraged by the Administration's enthusiasm for reform and welcome the opportunity to contribute to this truly important initiative.