This so-called “new” regulatory “system” for the US – at least on the first draft – looks like it is simply going to add a few more regulators into an already over-governed financial system. Adding in more regulators to a system in which, even at the lowest count, there are more than 54 I cannot see as an improvement. From prior experience all I can see it doing is increasing the amount of buck-passing, adding yet another reporting layer and making it even less clear than it already is as to who it is a given financial institution has to listen to.
If you are going to have a regulated system at least make it bloody clear who is responsible and then give them the powers to deal with most, if not all, problems. Then trust them to do their jobs – i.e. get out of the way.
The Australian example is a good one – the government delegated regulatory powers to APRA. There is little doubt over who regulates what – in Australia APRA deals with systemic and individual financial institutional risk – banks, insurers, the lot. The ASX deals with listed companies where it has anything to do with information to shareholders. ASIC deals with companies and any non-APRA regulated small financial entities. The individual States have some responsibilities with respect to consumer protection. AUSTRAC deals with money laundering and some elements of criminal behaviour. The Federal Police deal with other alleged criminal activity.
Even that takes a while to say – and does leave some overlaps, but it is nothing compared to the situation in the USA. At least I can get most ofthe Australian system into one paragraph.
I have always thought the correct way to deal with a mess was to tidy it up. The suggested system seems to amount to clean up a mess by throwing more rubbish on it. It is an innovative solution to the problems – but I cannot see it as brave, useful or intelligent. The US has only just sorted out how to go to Basel II – it has not yet been implemented.
If I can put in my suggestion – other than a free banking system (unlikely to be politically possible) the best solution would be fairly simple. Make the Fed responsible as the sole regulator of all non-State chartered financial institutions, insurance and banking alike. Close the FDIC and allow private sector insurers into the market. Close the OCC and all of the other parts of the alphabet soup that are currently failing to do their jobs.
Close down Fannie, Freddie, Sallie, Maggie (or whatever the rest are called) and the rest – if they need a federal guarantee (implicit or explicit) to do their jobs then they probably should not be doing it. Sell off all of their assets and then the US government makes good on all outstanding liabilities – and the shareholders lose their holdings unless by some miracle they are actually worth something.
Replace US accounting standards with proper ones – IFRS will do. The Fed then implements Basel II the way they wanted to do it (which is also the should be done) – not the half-arsed way they have had to do to get it past the FDIC.
Get all that done and you would have a “New Regulatory System” – and one you could be proud of. As it is you are just going to make a bad situation worse.