By Jonathan Stempel - Analysis
NEW YORK (Reuters) - If markets are to regain a semblance of sanity, financial sector regulation must be tightened or overhauled to ensure that excesses that led to the global market crisis are not repeated soon, or ever.
At the Reuters Global Finance Summit this week, experts said keys to restoring market confidence are to make investments and their accounting methods less secretive, to ensure capital levels are sufficient, and to reduce risk.
"One of the greatest flaws in the system was really understanding what was going on," said Gary Parr, deputy chairman of the investment bank Lazard Ltd (LAZ.N: Quote, Profile, Research, Stock Buzz). "There's going to be more regulation and transparency. That will be one of the major events of the next year, if not two years."
Years of lax or eased oversight may be coming to an end.
The reasoning? No longer should a Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) carry a bloated balance sheet; or a Washington Mutual Inc (WAMUQ.PK: Quote, Profile, Research, Stock Buzz) stuff $176 billion of home equity, adjustable-rate and subprime loans on its books; or a Merrill Lynch & Co Inc MER.N take on massive exposure to collateralized debt obligations that no one understood.
Many experts believe Democrats, fortified by the election of Barack Obama as president and gains in Congress, will make a serious effort in 2009 to overhaul the regulatory landscape, perhaps even merging the government's oversight agencies.
"I think it is on top of their agenda," said Robert Kapito, president of asset manager BlackRock Inc (BLK.N: Quote, Profile, Research, Stock Buzz). "We need major process changes, major infrastructure changes, major regulatory changes. There's no question about that."
MORE TRANSPARENCY NEEDED
Some fear any new regulatory fervor could go too far.
"Re-regulation of the financial sector, particularly in the U.S. but worldwide and Europe, is one of the big issues," said Rick Waugh, chief executive of Bank of Nova Scotia (BNS.TO: Quote, Profile, Research, Stock Buzz). "Is there an overreaction on capital levels? Is there an overreaction on where you should, or should not, do business?"
Still, aggressiveness could be justified, said Denis Salamone, chief operating officer of Hudson City Bancorp Inc (HCBK.O: Quote, Profile, Research, Stock Buzz), a large New Jersey mortgage lender that has sidestepped the credit crisis.
"It's deserved if it goes overboard a little bit," he said. "The industry, right across the board from sophisticated Wall Street firms that created the trusts and the CDOs, down to the intermediaries that made the loans, and in many cases borrowers' irresponsibility, will require more regulation."
Structural changes may be particularly hard to make in light of the politics and power struggles involved.
A March proposal by U.S. Treasury Secretary Henry Paulson to shuffle responsibilities among agencies and give more power to the Federal Reserve has had only limited impact, though pieces of his plan could yet come to fruition.
Paulson and Fed Chairman Ben Bernanke agreed that market disruptions showed the need to overhaul rules on financial behavior. Rep. Barney Frank, a Democrat who chairs the House Financial Services Committee, has long advocated structural change among regulators. Continued...
© Thomson Reuters 2009. All rights reserved.
| India Investment | Nov 23 - 25, 2009 | Country Summits |
| Global Finance | Nov 16 - 19, 2009 | Financial Services / Exchanges |
| Health | Nov 09 - 12, 2009 | Health |
| Autos | Nov 02 - 4, 2009 | Autos |
| Middle East Investment | Oct 26 - 28, 2009 | Country Summits |
