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Senate Banking Committee urged to increase regulatory oversight

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] US financial regulators and scholars advised the Senate Banking Committee on Thursday that "safety and soundness" can be restored to the financial system through increased regulatory oversight, but did not agree on the form that oversight should take. In his opening statement, committee Chair Christopher Dodd (D-CT) expressed doubt about the Obama administration's plan to control systemic risk to the economy by charging a Federal Reserve advisory panel with overseeing certain financial companies:The Fed hasn't done a perfect job, to put it mildly, with the responsibilities it already has. This new authority could compromise the independence the Fed needs to carry out effective monetary policy. Additionally, systemic risk regulation involves too broad a range of issues for any one regulator to oversee.Carnegie Mellon University Professor Allan Meltzer commented that "effective regulation should await evidence and conclusions about the causes of the recent crisis," but advised, "reform should start by increasing a banker's responsibility for losses. The administration's proposal does the opposite by making the Federal Reserve responsible for systemic risk." Securities and Exchange Commission (SEC) Chair Mary Schapiro advocated for increased regulation, transparency, and enforcement, stating, "major institutions engage in enormous, virtually unregulated trading in synthetic versions of other, often regulated financial products. We can do much to reduce systemic risk if we close these gaps and ensure that similar products are regulated similarly. Earlier this week, the US Court of Appeals for the District of Columbia Circuit remanded for reconsideration a rule intended to fill such gaps in the "existing patchwork of state insurance laws." Last week, Chicago Board Options Exchange CEO William Brodsky appeared before the US House of Representatives Committee on Financial Services to call for the merger of the SEC and the Commodity Futures Trading Commission (CFTC). Brodsky agreed with the Obama administration's position that a single authority should be assigned to supervise firms that potentially pose a risk to financial stability. He asserted that failing to modernize the current regulatory system has resulted in unregulated gaps, market congestion, and a lack of regulatory perspective. Last year, then-Treasury Secretary Henry Paulson Jr. unveiled a plan to merge the SEC and CFTC to overhaul the nation's financial regulatory system.

Full post as published by JURIST - The Paper Chase on July 24, 2009 (boomark / email).