Wednesday, January 14, 2009

Committee on Capital Markets Regulation Releases Recommendations for Reorganizing U.S. Regulatory Structure

/PRNewswire/ -- The Committee on Capital Markets Regulation, noting that the U.S. financial crisis has put the issue of financial regulatory structure on the front burner of public policy for the first time in decades, today released the following statement and recommendations for reorganizing the nation's financial regulatory structure:

The crisis has made possible reforms on a scale not imaginable since the Great Depression. Indeed, the severity of the crisis, the scope of the regulatory failures and the antiquated, patchwork design of the U.S. regulatory structure have given rise to a broad consensus regarding the need for sweeping regulatory reorganization.

This consensus presents a historic opportunity to bring U.S. financial regulatory structure into the 21st century, ensuring our role as a global leader in financial markets. Done properly, reform will restore market confidence, increase consumer and investor protection, improve regulatory quality, stimulate capital formation, enhance our ability to manage systemic risk and facilitate global policy coordination.

The Committee on Capital Markets Regulations believes there is enormous room to improve our regulatory structure. The U.S. employs more financial regulators and expends a higher percentage of its gross domestic product on financial oversight than any other major country. There are approximately 38,700 financial regulatory staff in the U.S., versus some 3,100 in the United Kingdom. Meanwhile, financial regulatory costs in the U.S. total $497,984 per billion dollars of GDP, versus $276,655 in the United Kingdom.

Yet recent events suggest that the far larger staffs and greater funding in the U.S. have not resulted in a correspondingly higher quality of supervision. The U.S. Treasury recognizes this, and issued its own bold recommendations, "Blueprint for a Modernized Financial Regulatory Structure," in March 2008.

At its core, federal financial regulation performs four functions: providing a lender of last resort, supervising and regulating financial institutions for safety and soundness, regulating market structure and conduct and providing for consumer/investor protection. Any regulatory structure must effectively perform these four functions. Further, the Committee believes that the functions must be coordinated by the President through the office of the Secretary of the Treasury. However, determining which part of the regulatory structure performs some or all of these functions is a more difficult challenge.

The Committee's recommendations address only revisions to U.S. federal regulatory structure. The Committee may consider later whether to address the role of the states and self-regulating organizations ("SROs"), internal agency organization or global coordination.(1)

The Committee is a non-partisan group of independent U.S. business, financial, investor and corporate governance, legal, accounting and academic leaders. It was formed in the fall of 2006 to study and report on ways to improve the regulation of the U.S. capital markets.

(1) In March, the Committee will release a new report -- "Capital Markets Regulation After the Credit Crisis" -- addressing key substantive regulatory issues.

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