Former SEC chairmen rap Congress for failing to shrink banks

Congress' proposed overhaul of U.S. bank regulation wouldn't have averted the 2008 financial crisis and would do little to prevent a recurrence, according to two former chairmen of the Securities and Exchange Commission.
JUN 20, 2010
By  Bloomberg
Congress' proposed overhaul of U.S. bank regulation wouldn't have averted the 2008 financial crisis and would do little to prevent a recurrence, according to two former chairmen of the Securities and Exchange Commission. Legislation being refined by a House-Senate conference after passage by both chambers would rely too heavily on the Federal Reserve, said Richard Breeden, who led the SEC from 1989 to 1993. Congress failed to address emerging threats such as abuses in the municipal bond market, which might trigger the next meltdown, said Arthur Levitt, who was SEC chairman from 1993 to 2001. “There was massively too much leverage within the financial system,” Mr. Breeden said at a Bloomberg Link Boards and Risk conference in Washington last week. “Regulators had the authority to control that and eliminate it,” he said. “We can keep passing laws, but if the regulators don't have the backbone to enforce the rules and to be realistic, then that's a different problem.” The House and Senate are finishing legislation designed to address the 2008 economic collapse that led to the failure of Lehman Brothers Holdings Inc. and pushed the banking industry to the brink of collapse. The measures would create a mechanism for winding down systemically risky financial firms, a regulatory structure for the derivatives market and a new federal bureau responsible for overseeing and regulating consumer financial products such as mortgages and credit cards. “I certainly don't think it would prevent the turmoil coming up, and I doubt very much it would have had much impact on the turmoil we have just experienced,” Mr. Levitt said at the conference. “You might surmise from that that I'm not a fan.” Regulators need to have the courage to make banks smaller and less profitable, Mr. Breeden said. “We would all be safer,” he said. Mr. Breeden, 60, and Mr. Levitt, 79, said that they don't believe that the SEC filed an April 16 lawsuit against The Goldman Sachs Group Inc. to help President Barack Obama win passage of the financial regulation overhaul. “I don't believe that for a single second,” said Mr. Levitt, who serves as an adviser to Goldman Sachs. “The SEC will not be impacted by public pressure to bring an action.” In its lawsuit, the SEC said that Goldman Sachs sold a security tied to the performance of mortgages without disclosing that client Paulson & Co. Inc., the hedge fund run by John Paulson, helped pick the underlying assets. He was betting that the security would fail, the SEC said. Goldman Sachs has said that the case has no merit. Mr. Levitt said he doesn't think Goldman Sachs will be required to appoint an independent monitor to review the company's practices as part of any potential settlement with the SEC. He also serves as an adviser to The Carlyle Group and is a board member of Bloomberg LP, the parent of Bloomberg News.

Latest News

NASAA moves to let state RIAs use client testimonials, aligning with SEC rule
NASAA moves to let state RIAs use client testimonials, aligning with SEC rule

A new proposal could end the ban on promoting client reviews in states like California and Connecticut, giving state-registered advisors a level playing field with their SEC-registered peers.

Could 401(k) plan participants gain from guided personalization?
Could 401(k) plan participants gain from guided personalization?

Morningstar research data show improved retirement trajectories for self-directors and allocators placed in managed accounts.

UBS sees a net loss of 111 financial advisors in the Americas during the second quarter
UBS sees a net loss of 111 financial advisors in the Americas during the second quarter

Some in the industry say that more UBS financial advisors this year will be heading for the exits.

JPMorgan reopens fight with fintechs, crypto over fees for customer data
JPMorgan reopens fight with fintechs, crypto over fees for customer data

The Wall Street giant has blasted data middlemen as digital freeloaders, but tech firms and consumer advocates are pushing back.

The average retiree is facing $173K in health care costs, Fidelity says
The average retiree is facing $173K in health care costs, Fidelity says

Research reveals a 4% year-on-year increase in expenses that one in five Americans, including one-quarter of Gen Xers, say they have not planned for.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.