America needs sensible, bipartisan financial reform now
— By Rob Nichols is president & COO of the Financial Services Forum. The views expressed are his own. —
Reform of our financial supervisory framework is a top priority for the members of the Financial Services Forum, and should be for our nation. In addition to protecting investors, consumers, and shareholders, bipartisan financial regulatory reform will bring much needed certainty to our capital and credit markets and help to fuel our economy and create jobs.
To maintain a position of financial and economic leadership, the United States needs a 21st century framework of financial supervision that protects the interests of depositors, investors, and consumers, and policy holders; ensures the safety and soundness of financial institutions; ensures financial system stability; and ensures an effective and competitive financial marketplace to fuel economic growth and job creation. Stated another way, financial reform must minimize the chances of another fire, while providing the means for effectively fighting another crisis should it occur.
Toward that end, the Financial Services Forum considers the following reforms essential:
• End “Too-Big-to-Fail”: The shareholders and management of financial institutions – regardless of size – should never again be insulated from the consequences of their own mistakes. The discipline of potential failure is necessary to ensure truly fair and competitive markets. Accordingly, Congress should provide the relevant agencies with the legal authority, procedural protocol, required resources, and expertise for resolving even the largest, most interconnected, and complex entities in a manner that preserves public confidence, protects systemic stability, and provides reasonable certainty to customers, shareholders, creditors, and other stakeholders. More effective supervision coupled with resolution authority is the remedy to too-big-to-fail – not the preemptive dismantling of large, healthy, well-managed institutions.
• Enhance Consumer Protection: The United States cannot be a world-class financial marketplace unless consumers have full confidence in the safety and soundness of financial institutions, the integrity of the markets, the quality and suitability of financial products, and the basic fairness of the broader financial system. Views differ on the best means of ensuring stronger consumer protections, but strong national standards – which would promote consistency of application and enforcement of consumer protection rules across all financial institutions – should be the principle that guides consumer protection efforts.
• Regulate Over-the-Counter Derivatives: Derivatives are financial tools that enable corporations and other businesses to hedge the risks to which their businesses are exposed – thereby lowering the cost of capital and contributing to economic growth and job creation. Effective oversight of OTC derivatives markets is necessary to: 1) ensure those markets do not threaten the stability of the broader financial system; 2) promote market transparency and efficiency; 3) prevent market manipulation, fraud, and other abuses; and, 4) ensure that derivatives are not used or marketed inappropriately.
Toward this end, all standardized OTC derivatives – as determined by regulators, working closely with the industry – among dealers and major non-end user market participants should be cleared through regulated central counterparties, and all OTC derivatives dealers should be subject to a robust regime of prudential supervision, including appropriate margin and capital requirements, business conduct and transparency standards, and timely reporting requirements.
Establish “Systemic Supervision”: To ensure a more coherent, consistent, and comprehensive approach to financial supervision, some entity should be charged with monitoring, assessing, and addressing emerging risks that might threaten the stability of the financial system. To avoid the confusion that stems from duplicative regulation, the systemic supervisor and relevant functional regulators should coordinate their activities. Similarly, because systemic risk is a global concern, active coordination with foreign and international counterparts is critical to ensure cross-border supervisory consistency, and to ensure a level field of competition.
In order for our financial sector to best serve Main Street, it is critical that we determine the rules of the road. We appreciate the hard work of Senators on both sides of the aisle to address these complex issues, and respectfully urge members to reach a bipartisan agreement this year.