Rules of the Road…

President Obama has announced a comprehensive plan for the regulatory reform of our financial system, and has made use of the term “Rules of the Road” to quantify the depth and resolve of this plan. I applaud the President, and the Administration for taking this much needed step to address the serious state of our economic crises, and to address:

  • The significant risk posed by the “Too big to Fail” Institutions, and the requirement that those firms are subject to a strong consolidated supervisor, and regulation.
  • A tiered capital structure which will increase capital standards as the level of risk increases.
  • Strengthening consumer protection regulation and oversight.
  • Providing the government with the proper tools to manage a financial failure, and the ability to resolve any size institution.
  • Creating cooperation between and with our international neighbors on the subject of regulation, oversight and capital standards.


“Rules of the Road” should provide an understandable framework with which to operate, and create the ability for all institutions to pilot and navigate through the waters of our capitalist system. 

“Rules of the Road” do not, and should not dictate who is in the pilot house, what direction the captain should take, or guarantee the safe arrival of any vessel to any port.

The plan as discussed by the President lays out the proper groundwork for financial reform. The details however, require careful consideration, as they will be the most dramatic changes in our system since the Great Depression.

The expansion of the powers at the Federal Reserve requires another look, in order to maintain the independence of the Fed. Resolution authority has been proven to be effective at the FDIC, and so it would seem logical that this should also extend to systemic organizations. It would also seem to me, that this should be a temporary issue as we should be working to prevent any institution from ever becoming systemically important.

The creation of accountability at all levels of the financial system from banking to mortgages to securitization seems to be rooted in the right direction. It was certainly the lack of accountability that created the mess we are currently enduring.

The creation of a new Consumer Protection Regulator which although sounds like a good idea on the surface, could in fact be counter-intuitive and possesses the greatest challenge to sticking to just  ”Rules of the Road.” This portion of the reform package would un-necessarily burden banks, directly dictate what products can, and must be sold, threaten state regulators, create onerous and complex regulations, and stifle any innovation in the financial space.

We should be looking to be “evolutionary” in our quest for regulatory reform and not “revolutionary” as we hold the ability at this juncture to either overburden all institutions because of the mischief of a few, or support the vast majority of financial companies and banks that played by the rules, created jobs, and continue to provide the financing for Main Street America.

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