Although regulatory reform will result in more-stringent enforcement in the wake of the financial crisis, the authorities in charge of that enforcement are not likely to change much, according to a panel of experts speaking today at the
Financial Industry Regulatory Authority Inc. at its annual conference in Boston.
Panelists agreed that the federal government will likely create a systemic-risk regulator, but the merging of existing financial authorities is not probable.
“Never underestimate the power of the status quo,” said John Coffee, the Adolf A. Berle Professor of Law at Columbia Law School of New York.
“I think what we may see is that they give each of the half dozen existing regulators some systemic-risk authority. I don’t know if we will see one regulator. The political obstacles and frictions are high.”
Currently, there is a different regulator for every class of financial institution, he said. “I don’t think we’ll move far away from that model,” Mr. Coffee said.
Others agreed.
“It seems like we’ve been through this before,” said Fred Joseph, president of the Washington-based North American Securities Administrators Association Inc. and Colorado’s securities commissioner.
“I think we’ll have changes, but in 2015, we may be sitting here talking about a lot of the same issues.”
Others said a single regulator may merely be added to the existing structure.
“I suspect we’ll end up with a systemic-risk regulator, but with lots of functional regulators who will try to figure out whose job it is to do what,” said Annette Nazareth, a partner at Davis Polk & Wardwell of New York and former Securities and Exchange Commission member.
“Certainly, in the next few years, we’ll see more enforcement.”
The systemic-risk regulatory responsibility likely will be given to the
Federal Reserve Bank, Ms. Nazareth said.
“The systemic-risk regulator has to be able to control the ability to lend in on emergency basis to institutions that are in dire straits,” she said. “In other countries, the lender of last resort, or their central bank, has the ultimate authority.”
All panelists agreed that more enforcement is on the horizon for the industry, requiring more transparency from over-the-counter derivatives trading and
hedge fund investing.
“Transparency is the name of the game, and leverage is a four-letter word,” Mr. Joseph said.
Clearinghouses will take on a more prominent role in the regulatory-reform process, Mr. Coffee said. “With a clearinghouse, at least the government will know who is trading,” he said.
More than 500 people attended the three-day conference of the New York- and Washington-based policing agency for the securities industry.
