Don't expect to see an easing in regulatory reform -- at least not in the near-term.
As aggressive as regulators have been, they are likely to keep pushing forward -- perhaps even harder than they've been -- through the first two to three quarters of 2010, says Stephen Bruel, research director of the securities and capital markets group at consultancy TowerGroup.
Bruel, who gave a presentation earlier this morning at the midtown-Manhattan offices of Sybase, contends that it’s the regulators who have recognized that many of their own practices are flawed and will move to rectify their shortcomings and inefficiencies—but that will spill on down into the laps of banks.
“If you say, ‘Who had the worst risk management processes?’ Was it the regulators?” Bruel asks. “They didn’t have the right data, the right information, the right reporting mechanisms to extract from any of the banks the information they needed to properly assess the state of the market and the implications of what they were seeing.
“One of the problems that we saw [after the financial crisis] was that regulators weren’t talking to each other. One of my biggest surprises is that they haven’t created the Department of Homeland Security equivalent of regulation.”
Without the proper data available, regulators were grasping in the dark over the course of the market meltdown trying to put out one fire after another. That will hopefully change with greater transparency of data.
“That is the solution that they are going to try and resolve…and all of [regulators’] activities are going to stem from this need to gather information so that they can, somewhat proactively but at least reactively, understand what happens [to systemic risk facing the industry] when rates rise [or] when the Euro rises more drastically than one thinks,” he says
What this all means, essentially, is that data is king. Firms will have to develop processes to ensure that regulators have the necessary data to manage systemic risk. The ultimate goal is to present an aggregated risk profile using data that helps both the regulator and the institution.
“Without that data, you can’t manage your risk,” Bruel says. “The goal [of the regulators] is to change behavior because if you don’t change behavior then the regulation is worthless.”
— Anthony Malakian
