Financial reform "wimpy", top strategist says

Richard Bernstein Capital Management LLC. Chief Executive Officer (CEO) Richard Bernstein speaks at the Reuters Investment Outlook Summit in New York, June 7, 2010.

NEW YORK (Reuters) - The U.S. financial regulatory reform bill is "immensely wimpy" and doesn't go far enough in tackling key problems in the banking system, a top investment strategist said on Monday.

The sweeping rewrite of financial regulations hitting the final stretch in Washington focuses too much on preserving corporate entities rather than on the role these entities are supposed to play in the economy, Richard Bernstein, chief executive officer of Richard Bernstein Capital Management, told the Reuters Investment Outlook Summit in New York.

"I think it is immensely wimpy," Bernstein said. "The entire capital formation process has broken down in the United States. We have to get back to what the whole point of banking and investment banking really is."

The aim of banking should be to help build productive assets in the real economy, he said.

"As a policymaker in Washington your issue is if banks are lending in the domestic 50 states," he said. Policy-makers should not care how profitable banks are and if they can do "currency swaps in Australia," he said.

Political polarization in Washington was making any significant structural changes very difficult, especially with the mid-term elections looming in November, he said.

Part of the financial regulatory reform debate is the so-called "Volcker Rule", that would limit proprietary trading, or trades not conducted on behalf of customers.

Bernstein said he agreed that proprietary swap trading "is not an integral part of capital formation process of the United States," he said. He added that he rejected the argument that reform of this area could stymie financial innovation.

"It has yet to be proven to me that financial innovation has been beneficial to anyone outside Wall Street," since the repeal of the Glass Steagall Act that separated commercial and investment banking, he said.

(additional reporting by Emily Flitter)