Capital Markets Regulatory Reform - We Need to Get This Right

by David Hirschmann

The Chamber has called for comprehensive reform of our capital markets regulatory structure since well before the current crisis.  Our regulatory structure is 75 years outdated, and in order to ensure the capital formation necessary to spur long term economic growth and job creation, we need a comprehensive and effective overhaul.     

With the Obama Administration announcing its proposal for regulatory reform, we’d like to provide the business community’s perspective and identify our key priorities.    

First – we need to get this right, and achieve comprehensive and forward-looking reform.  Partial solutions or sound-byte driven proposals will only exacerbate the problems of the current system and create more uncertainty.

Proposals by the Administration and Congress should be focused on resolving three fundamental problems with our regulatory system: ineffective regulation, regulators that aren’t well coordinated, and gaps and duplication in current regulation. 

What We Need

• We need an overhaul and transformation of existing regulators so that they have world class technology, expertise and market insight to effectively protect investors and consumers. 

• We need to ensure there is transparency in the system to provide regulators with the information they need to identify risks to the system, identify the appropriate actions to mitigate them, and to ensure someone is seeing the big picture. 

• We need to enhance consumer protection through effective regulation, disclosure that is understandable and concise, consumer education, and enforcement of the laws to deter and punish illegal and predatory activities.

• We need to ensure regulators are adequately coordinating with each other.  This cooperation is not only important at home among U.S. regulators, but should also extend to market regulators outside our borders. 

• We need to close certain regulatory gaps by improving the oversight of the derivatives markets, and by requiring registration of hedge fund advisers.

• Lastly, we need an exit strategy for programs established by the Congress, Treasury and Federal Reserve to address this crisis.  Government steps designed to reignite lending can only be fully effective if private market participants know the rules of the game and there is a clear, timely and predictable exit plan.

What We Don’t Need

• We don’t need a stand alone consumer protection agency that cannibalizes regulatory expertise, adding yet another regulatory layer and additional regulatory gaps.

• We don’t need a systemic risk authority that duplicates regulation by existing regulators or permanently designates specific financial institutions as systemically significant, thereby implying they are too big to fail.  There should be no explicit or implied expectation that losses at large firms will be socialized to the taxpayer.

• We don’t need proposals, such as proxy access, that advance the agenda of activist special interests at the expense of good governance and long-term returns for average shareholders.

• We don’t need rigid and inflexible regulation that stifles responsible innovation.  Regulated entities should be able to get timely answers to allow for responsible innovation within the regulated structure.  We cannot drive or force innovation into dark unregulated corners here or around the globe.

In short, the Chamber will strongly support proposals that will make the regulatory system more effective.  And we’ll put up a fight when it comes to regulations that will add to the layering, duplication, and gaps of the current system. 

Congress should pursue real reform that will spur the capital formation needed to secure real long-term economic growth and job creation.

We hope the Administration has not listened to those who only want to tinker at the edges. We believe it will be best for our long term recovery to emerge from the crisis with a comprehensive overhaul and modernization of the regulatory system.  If not now, when?   

Comments

[Lou Jobin]

If you want an insight into how major financial instutions gutted the middle class in America, check out the book, Broke, USA."

[Bobbi Bennett]

Criminals exist in every organization, institution and group. To demonize Wall Street is to play into the hands of those who would blind us to truth. The Chamber position is a reasonable one. I wonder if those who have commented have ever really looked into the subject or merely respond with knee-jerk reactions to media propaganda.

Wall Street, Corporations, etc. are not evil, they are amoral entities with a single purpose - to produce profits for investors. Profits in and of themselves are not immoral. In fact, they are a good thing. Profits on investments benefit millions of retirees, families and individuals who want to support themselves, their families and their communities. Without profit, we would all be working merely to subsist, there would be no growth and no leisure to pursue the arts, philosophy, advanced sciences, or for morons like Mr. Block to write nonsense like that in his post of June 18.

As to trickle down economics, Mr. Block, take a look at the IRS tax rate schedules from 2000 through 2006, the poor benefited greatly from cuts in tax rates, increases in child credits and elimination of the marriage penalty.

As to laissez-faire, have you ever read any of the thousands of pages of regulation pertaining to financial institutions and Wall Street?

Do you have any clue of how government makes arbitrary rules, or how they are or are not enforced, or how they changed accounting methods mid stream?

Were you aware that Fannie Mae and Freddie Mac, quasi-governmental entities, promoted and facilitated the financial crisis through purposeful policy? You can look these organizations up and read the yearly reports. They celebrated and promoted the creative financial instruments you decry.

Did you know that government regulators mandated changes in accounting rules on November 15, 2007? Do you have any idea of what it would do to your own financial picture if property that is an asset today becomes a liability tomorrow, for no other reason than some bureaucrat put it in a different column on your financial ledger?

I am so tired of useful idiots.

[Joe stafura]

The chamber is essentially a mouthpiece for the status quo, the idea you present are no more valid than obama's, they just protect the private interests of the criminals on Wall Street.

[amsatpro]

Yes you're right!
Todd DiRoberto
http://www.linkedin.com/pub/todd-diroberto/14/8b8/851

[James Block]

What have the financial industries done over the last thirty years but become more corrupt:

Michael Milken
Savings and Loan collapse
Bernie Madoff
Failure based performance of CEOs
No consumer protection from predatory lending
Utter financial collapse on esoteric financial instruments
Do you want a return to feudalism while you are at it
Laissez-faire gone wild
trickle down economics
The financial establishment has failed utterly why should bring America down with you