The U.S Department of the Treasury today proposed a new set of rules and regulations governing activities and firms in the financial marketplace. We applaud and fully support this effort. It follow a regulatory structure we first outlined in 1998, and expanded in 2007. As such we are hopeful.
The proposal consists of four broad outlines:
1. "Addressing Systemic Risk: large, interconnected firms and markets need to be under a more consistent and more conservative regulatory regime.
2. Protecting Consumers and Investors: clear rules of the road that prevent manipulation and abuse.
3. Eliminating Gaps in Our Regulatory Structure: clear authority, resources, and accountability for key functions. A substantive system of regulation that meets the needs of the American people.
4. Fostering International Coordination: ensure that international rules for financial regulation are consistent with the high standards in the United States. Launch (of) a new initiative to address prudential supervision, tax havens, and money laundering issues in weakly-regulated jurisdictions."
According to the NY Times, "The (Obama) administration would require that all standardized derivatives be traded through a regulated clearinghouse." We noted this need in our comments to the Senate, and are happy to see this made part of the solution proposed.
Further, we note that on June 18, 1998, in a letter to Betsy White, Senior Vice President at the NY Fed, we said:
"Finally, it is our continuing belief that the Federal Reserve Board should be designated a 'Superregulator,' with broad responsibility for overseeing the activities of banks, thrifts, pension funds, insurance companies, mutual fund companies, brokerage firms and investment banks. We note our belief that financial institution convergence, driven by recent advancements in financial and computer technology, requires the creation of such a 'Super-regulator.' "
We, and others, no longer believe the Federal Reserve independent or objective enough to serve as "Superregulator" or as "Systemic Regulator." They are, thus, unqualified for the role.
This role should be filled by an entirely new entity.
According to Treasury, "In the coming weeks, Secretary Geithner will present detailed frameworks for each of these areas." These will require careful review.