Financial Regulatory Reform Takes Back Seat

As we are emerging from the financial crisis, the debate on Capitol Hill is firmly focused on health-care rather than financial regulatory reform.  It seems as though Congress can only single thread major legislation and, as a result, financial regulatory reform has taken a back seat.  However, the American Banker reported this week that the president is still intent on passing meaningful regulatory reform this year.  Here is what they had to say.

With much of the political world focused on health-care reform, the president appeared to signal that a financial services overhaul is still a priority for him. He reiterated that he hopes Congress will act this year — an increasingly unrealistic timeline by most estimates — and warned that bankers and other lenders cannot return to business as usual now that the crisis appears to be passing.

"The growing stability resulting from these interventions means we are beginning to return to normalcy," President Obama said in a speech at Federal Hall in the heart of New York's financial district. "But what I want to emphasize is this: Normalcy cannot lead to complacency. … We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses."

Unfortunately, a well conceived plan to reform our financial regulatory structure has not been put forth. Without a clear plan, action will come later rather than sooner. Let's hope the bail-out band-aids hold long enough to see meaningful reform.

Regulating Risky Business

The regulatory reform starting gun was sounded by President Obama yesterday and it was described more as a marathon than a sprint to the finish.  However, the President was clear on the objectives of the reform as noted in the Wall Street Journal.

Mr. Obama said "financial institutions that pose serious risks -- systemic risks -- to our markets should be subject to serious oversight by the government." He said U.S. taxpayers "should be assured" that the Federal Reserve, which is acting as a lender of last resort in many cases, "understands the institutions it insures and actively monitors them to keep their risk-taking in check."

The president said the overhauled regulatory structure "must be strong enough to withstand both systemwide stress and the failure of one or more large institutions."Mr. Obama also called for greater transparency, more-uniform supervision of financial products, and "strict accountability" for market players who engage in risky behavior. "Executives who violate the public trust must be held responsible," the president said.

Representative Barney Frank commented on the nature of the process required to reform the regulatory structure.

Rep. Frank said he expects the effort will be done in stages, with action first on a bill that will empower a regulator, likely the Federal Reserve, to regulate risk across the financial system.  "It's either the Fed or you start from scratch," Mr. Frank said.

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