Now that the Obama administration has declared the beginning of the end of the recession, and with both the executive and legislative branches seemingly mired in what some observers describe as a make-or- break healthcare initiation for the president, an alarm has been sounded to get finance reforms locked down.
In testimony before the House Financial Services Committee, Treasury Secretary Timothy Geithner argued for Congress to adopt the Obama administration’s proposals, which include a new consumer watchdog agency and the merger of some of the groups charged with overseeing banks, to overhaul Wall Street. “The flaws in our financial system and regulatory framework that allowed this crisis to occur, and in many ways helped cause it, are still in place,” Geithner said in prepared remarks. “We may disagree over details of how to best fix those flaws, but that cannot mean we do not act.”
Rep. Barney Frank (D-MA), who chairs the committee, told reporters that he expects the House to vote in November on financial reform legislation. In the Senate, Christopher Dodd (D-CT), chair of the Banking Committee, has said he would propose a major departure from the administration plan—merging the four existing bank regulatory agencies into a single national bank regulator. The Obama plan did not go as far in that regard, proposing only to merge two of the agencies—the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC).
Senators Dodd and Frank are strong supporters of a consumer agency that would have the ability to draft rules as well as inspect financial institutions for compliance. The heads of the OTS, the OCC, and the Federal Deposit Insurance Corp. have reiterated their opposition to a provision that would move consumer enforcement powers to the new agency. “We care about consumer protection,” said FDIC Chairwoman Sheila C. Bair.
Meanwhile, the Securities and Exchange Commission has proposed restrictions on short selling and a ban on a type of electronic trading called flash orders that critics say gives some powerful financial players an unfair advantage. More important to directors, however, was the creation of a new division that combines the Office of Economic Analysis (OEA) and the Office of Risk Assessment (ORA). Directing the SEC’s new Division of Risk, Strategy and Financial Innovation is University of Texas Law Profession Henry T. C. Hu, who has begun assembling a team. “This new division will enhance our capabilities and help identify developing risks and trends in the financial markets,” said Schapiro in a statement. “By combining economic, financial, and legal analysis in a single group, this new unit will foster a fresh approach to exchanging ideas and upgrading agency expertise.”
Schapiro lauded Hu for his “vast understanding of the complexities of the markets [which] will be put to good use on behalf of investors.”
In a an interview with The Wall Street Journal the day after he was appointed, Hu said: “Part of my job is broad, 35,000-foot strategic thinking and looking at
areas that may be worth considering that may not be obvious.”
The new division, according to an SEC statement, will perform all of the functions previously performed by the OEA and ORA, along with the following: strategic and long-term analysis; identifying new developments and trends in financial markets and systemic risk; making recommendations as to how these new developments and trends affect the Commission’s regulatory activities; conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices; and providing training on new developments, trends, and other matters.
Hu’s responsibilities, which cover risk and economic analysis, strategic research, and financial innovation, will “include how financial innovation interacts with what happens on Wall Street and on Main Street,” he said, adding that he hopes to use the new position as a “lens to help inform SEC activities in terms of possible rule-making or other actions.”