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financial regulation reform March 31, 2008

Posted by Bradley in : Uncategorized , trackback

Announcing a hodge-podge of proposals for financial regulation in the US today (the full report is here), which grew out of the concerns about US market competitiveness post Sarbanes-Oxley, Henry Paulson said:

As recent events have demonstrated, investor protection and market stability are critical elements of competitiveness. Far from being at odds with one another, they are mutually reinforcing.

But as part of the short term planning involves eliminating the OTS (which last August proposed a new approach to dealing with unfair or deceptive acts or practices (see e.g. the objections of the New York Bankers Association)) and transferring its functions to the OCC which was the favoured regulator for banks trying to avoid state predatory lending regulation, this looks as though the competitiveness focus means helping financial firms rather than their customers. And combining the CFTC and the SEC – which seems to be designed to emphasise the CFTC’s approach to regulation – is also designed to be friendly to firms. Competitiveness is often code for getting rid of rules. On the other hand there are rules which don’t do much other than impede useful competition.

Longer term there is a (triple peaks?) model which:

holistically addresses the inadequacies of the current functional regulatory system… An objectives-based regulatory approach best represents the optimal regulatory structure for the future. The structure will consist of a market stability regulator, a prudential regulator and a business conduct regulator with a focus on consumer protection.

Recations are mixed, for example, over the weekend, SIFMA said non-committally that the plan was thoughtful and sweeping. The Financial Services Roundtable is more enthusiastic and has applauded the proposals.


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