Academic

Financial Reform Passes

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

We've been following the bill for a very long time, though this reform came faster than did the '33 and '34 Securities and Exchange Acts (following the 1929 crash, and a bit slower than Sarbanes-Oxley (passed July 30, 2002; Enron collapsed in late 2001 - a 7 month or so period for reflection and evaluation).  This bill is separated by one year and nine months from the collapse of Lehman and AIG.  I've told you that I am impressed by the statute; here's Steve Davidoff with a similarly impressed, and nuanced must-read evaluation; here's his take on the new resolution authority provided in it, which is a critical part of the act - Davidoff's evaluation is quite positive there, too.  Simon Johnson, the act's big critic from the left, thinks there may be a basis for his pet project, which is to break up the banks.  So there's a lot to consider, but lots will turn on regulatory implementation.  I'd keep two regulators in mind in particular.  First, do not neglect the Basel Committee, which is hard at work on Basel III, and may have more to say about leverage caps there, as well as pretty strict definitions of regulatory capital.  And second, though they won't be implementing much, the office of insurance created by the act.  What will it do?  Will the next financial crisis lead to that federalization of insurance regulation that big insurers so desire?

It is one of many questions that the new regulatory regime will be addressing.  I'm a bit surprised that almost every Republican will be going into their re-election campaigns indicating that they voted against reform, but I suppose I'll leave the political implications to others.

Full post as published by Conglomerate on July 15, 2010 (boomark / email).