Financial regulation lessons learned by the SEC and Congress

The Security Traders Association (STA) held their Twelfth Annual Washington Conference this week, with discussions with legislators and regulators. Securities and Exchange Commission Chairman Christopher Cox, the keynote speaker, said maintaining vibrancy in markets requires adaptability and vigilance. He said the framework of the federal service regulation for investment banking was dangerously inadequate and behind the times, and that this was the first time a bank like Bear Stearns faced such a crisis of confidence. He said the SEC needs to immediately change standards and expand regulations for investment banks, establish different scenarios for risk management, and be able to supervise investment banks on a consolidated basis.

SEC Commissioner Paul S. Atkins also spoke at the conference, and said the SEC and other regulators should begin to apply lessons learned from this experience and the past. He included lessons such as remembering that capital markets are resilient and go through difficult times, and learning not to devise regulatory policies without understanding the problem. He said strong relationships should exist between regulators before problems arise. He also suggested that regulators should draw from those with experience in the industry, since the industry is always changing.

Several congressmen and senators spoke at the event, including Sen. Jack Reed (D-R.I.). Reed said it is essential to step back and assess SEC resources and their capacity for regulation. He urged regulators to look at what happened and what they had anticipated, so it does not happen again. He wants to strengthen the market and its transparency, and bring back investor confidence. Sen. Robert Menendez (D-N.J.) says this challenge goes beyond just one industry, and that regulators need to look ahead rather than just “cleaning up” after problems.

Congressman Ed Perlmutter (D-Colo.) said the House of Representatives is voting on several financial service bills, such as a bill to provide funding to local governments to purchase and fix up closed properties in order to stabilize neighborhoods. Congressman Dennis Moore (D-Kan.) said the country needs financial literacy and understanding. He also said Congress needs to work together to take action and address financial situations, despite party differences. These views were similarly expressed by Perlmutter and Congressman Paul E. Kanjorski (D-Pa.).