Changing regulations in changing times

The Center for Capital Markets Competitiveness met to discuss whether the regulatory structure of capital markets is outdated. Participating speakers agreed that the current regulatory system is in need of modernization to deal with changing markets but disagreed over what that modernization entailed. Eugene Ludwig, the founder of Promontory Financial Group, LLC, suggested that a system that enforces less while equally regulating large and small institutions is needed. Ludwig said that power is moving to favor large institutions and that this movement was not the intention of the founders of the United States.

Harvey Pitt, CEO of Kalorama Partners, LLC, agreed that smaller regulation is necessary but also challenged the idea of how to regulate. Pitt said that too many regulatory agencies act in a reactionary manner only. He added that reacting to an issue after it has occurred is not a regulatory practice but rather an enforcement practice. Pitt said that financial institutions, especially in light of the subprime mortgage crisis, would benefit by meeting with regulatory agencies to verify compliance with standards. Pitt said markets will only be harmed by additional regulation that is undue.

Peter Wallison of the American Enterprise Institute reiterated that the US regulatory system has failed consistently because a line of people from mortgage brokers through to the market “didn’t do their jobs.” Wallison added that Congress would have protected a consumer’s option to engage in high risk mortgages had a regulatory agency gone before Congress and stated potential for widespread consumer loss. Annette Nazareth, the former commissioner of the U.S. Securities and Exchange Commission said that like democracy, capital market regulations are imperfect but still necessary.