The financial services industry yesterday called on Congress to enact sweeping regulatory reforms, including creating a “stability regulator” to oversee systemic risk in all financial services firms.
Among those calling for a “financial markets stability regulator” was Timothy Ryan, president and chief executive of the Securities Industry and Financial Markets Association of New York and Washington.
The U.S. financial markets regulatory structure dates back to the Great Depression, he noted.
In contrast to that time, “financial institutions no longer operate in single product, or business silo, or in purely domestic or local markets,” Mr. Ryan told the House Financial Services Committee, which held a hearing on revamping the financial regulatory structure. “Instead, they compete across many lines of business and in many markets that are largely global,” he said.
However, the U.S. financial regulatory structure “remains ‘siloed’ at both the state and federal levels. No single regulator currently has access to sufficient information or the practical and legal tools and authority necessary to protect the financial system as a whole against systemic risk,” Mr. Ryan said.
A stability regulator should be allowed to determine which institutions need oversight, including banks, brokerage firms, insurance companies, hedge funds, private-equity funds and others, he said.
The Gramm Leach Bliley Act of 1999, which allowed banks, brokerage firms and insurance companies to get into one another’s business, “was incomplete in the sense that we did not have a systemic regulator. And that’s we really need is a systemic oversight regulator,” said Edward Yingling, president and chief executive of the American Bankers Association of Washington.
Some have cited Gramm Leach Bliley Act as contributing to the current financial crisis. But Mr. Yingling said that’s a “misguided” argument.
“In a way, Gramm-Leach-Bliley provided an exit,” he said. Passage of the law allowed Merrill Lynch & Co. Inc. of New York to be acquired by Bank of America Corp. of Charlotte, N.C., and it allowed The Goldman Sachs Group Inc. and Morgan Stanley, both of New York, to switch from being investment banks to become bank holding companies, Mr. Yingling said.
The Financial Services Roundtable also added to its list of recommended regulatory changes adoption of national insurance supervision. “The state-by-state system of insurance regulation is the last vestige of 19th-century regulation,” said Steve Bartlett, president and chief executive of the umbrella group of financial services industries, based in Washington.
Fair-value-accounting rules should be reformed to determine the true value of assets in distressed and illiquid markets, and credit default swaps need to be federally regulated by either the Federal Reserve Board or the Commodity Futures Trading Commission, he said.
Securities and Exchange Commission Chairman Christopher Cox has also called for congressional authority to regulate credit default swaps.
“This is as important a set of economic decisions this country is making since the Depression,” committee chairman Barney Frank, D-Mass., commented.