SEC's Cox: strong, effective regulation needed
WASHINGTON (Reuters) - The credit crisis shows regulatory gaps need to be closed on credit default swaps and investment bank supervision, the chairman of the U.S. Securities and Exchange Commission said on Thursday.
"The lessons of the credit crisis all point to the need for strong and effective regulation, but without major holes and gaps," Christopher Cox said in comments prepared for delivery to a Congressional panel.
Cox reiterated pleas to give the SEC authority to regulate the fast-growing $55 trillion credit default swap market, which has been blamed for exacerbating the financial meltdown.
Used to insure against bond default risk, swaps are so large and their terms are so poorly understood that they played a key role in freezing up the credit markets.
Cox also urged Congress to assign a regulator to supervise investment bank holding companies, a business model that has largely disappeared in a brutal Wall Street shakeout.
"It was a fateful mistake in the Gramm-Leach-Bliley Act that neither the SEC nor any regulator was given the statutory authority to regulate investment bank holding companies other than on a voluntary basis," Cox said. The 1999 act deregulated the banking industry.
The SEC ended its voluntary program to supervise the five largest investment banks earlier this year after Lehman Brothers Holdings Inc filed for bankruptcy, Bear Stearns was sold to JPMorgan Chase & Co, Merrill Lynch & Co Inc was acquired by Bank of America Corp and Goldman Sachs Group Inc and Morgan Stanley reorganized into bank holding companies.
Cox defended the SEC's role in loosely overseeing broker-dealer firms and said: "It's not a traditional mission of the SEC to regulate the safety and soundness of diversified financial conglomerates whose activities range far beyond the securities realm."
The House of Representatives Oversight and Government Reform Committee is holding a series of hearings to examine the origins of the financial crisis.
Along with Cox, former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary John Snow are also testifying.
Cox said he would have done a number of things differently, knowing what he knows now, including working with Congress to close regulatory gaps in credit default swap oversight.
Cox said he would have wanted to question every one of the assumptions behind SEC's investment bank supervisory program and said he would have worked even more aggressively for legislation requiring stronger disclosure to investors in municipal securities.
(Reporting by Rachelle Younglai; Editing by Brian Moss)
