via WSJ.com: Washington Wire on 4/22/10
By Damian Paletta and David Wessel
Two years ago, in March 2008, candidate Barack Obama went to Cooper Union in New York to offer a six-point agenda for financial regulatory reform.
On Thursday, he returns there as president to talk about the same subject as the Senate prepares to debate the issue.
Here's a look at what he said then, and where things stand today:
1. THEN: "If you can borrow from the government, you should be subject to government oversight and supervision…..The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort. When the Fed steps in, it is providing lenders an insurance policy underwritten by the American taxpayer. In return, taxpayers have every right to expect that these institutions are not taking excessive risks. Now, the nature of regulation should depend on the degree and extent of the Fed's exposure. But, at the very least, these new regulations should include liquidity and capital requirements."
NOW: With some success, the Obama administration has pressed Congress to give the Fed the supervisory power over the biggest financial institutions. These would include tougher new capital and liquidity requirements. One issue: The Senate bill currently would not allow the Fed to supervise small state-chartered banks, even though they could theoretically borrow from the Fed's discount window.
2. THEN "Second, there needs to be general reform of the requirements to which all regulated financial institutions are subjected. Capital requirements should be strengthened, particularly for complex financial instruments like some of the mortgage securities that led to our current crisis. We must develop and rigorously manage liquidity risks. We must investigate ratings agencies and potential conflicts of interest with the people that they are rating. And transparency requirements must demand full disclosure by financial institutions to shareholders and counter parties. As we reform our regulatory system at home, we should work with international arrangements, like the Basel Committee on Banking Supervision, the International Accounting Standards Board, and the Financial Stability Forum, to address the same problems abroad. The goal should be to ensure that financial institutions around the world are subject to similar rules of the road, both to make the system more stable and to keep our financial institutions competitive.
NOW: The Group of 20 set a year-end 2010 deadline for new global bank capital standards. Talks are proceeding haltingly, hurt by national rivalries. But these global talks are focusing on many of the same things Obama cited, including new liquidity requirements.
3. THEN: "We need to streamline a framework of overlapping and competing regulatory agencies. Reshuffling bureaucracies should not be an end in itself. But the large, complex institutions that dominate the financial landscape don't fit into categories created decades ago. Different institutions compete in multiple markets. Our regulatory system should not pretend otherwise. A streamlined system will provide better oversight and be less costly for regulated institutions."
NOW: As president, Mr. Obama largely abandoned talk of streamlining a hodgepodge of regulatory agencies, deciding it was politically impossible. Regulators still compete with one another in a variety of ways.
4. THEN: "We need to regulate institutions for what they do, not what they are. Over the last few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies. Now, it makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don't originate from banks. This regulatory framework has failed to protect homeowners and it is now clear that it made no sense for our financial system. When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.
NOW: The administration has pressed hard for an independent consumer finance regulatory agency whose authority would span the financial system. It now appears likely a new law will create a new consumer protection regulator that has broad powers to oversee mortgage products at both banks and nonbanks.
5. THEN: "We must remain vigilant and crack down on trading activity that crosses the line to market manipulation. On recent days, reports have circulated that some traders may have intentionally spread rumors that Bear Stearns was in financial distress while making market bets against the country. The SEC should investigate and punish this kind of market manipulation and report its conclusions to Congress.
NOW: There hasn't been much activity from the SEC on market manipulation issues, although the SEC's civil fraud case against Goldman Sachs Group Inc. does represent a new era in an aggressive crack down on Wall Street.
6. THEN: "We need a process that identifies systemic risks to the financial system. Too often we deal with threats to the financial system that weren't anticipated by regulators. That's why we should create a financial market oversight commission, which would meet regularly and provide advice to the president, Congress and regulators on the state of our financial markets and the risks that face them. These experts' views could help anticipate risks before they erupt into a crisis.
NOW: There's not much talk of a commission of outside experts, but the administration has acquiesced to congressional insistence that a council of regulators be created. The new council would be tasked with monitoring systemic risks to the economy, though its ultimate powers are still unclear.
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