The Securities Industry and Financial Markets Association (SIFMA) held it's annual meeting today with a top-notch lineup of speakers--although Treasury Secretary Henry Paulson unfortunately was a no-show.
Mayor Mike Bloomberg kicked off the day with a few jokes and what seemed remarkably like a campaign speech--2009, anyone?--as he pointed out that the US will face much bigger crises in the coming years than the current financial one if it does not focus on its crumbling infrastructure, as well as energy issues and improving schools.
With regards to the securities industry, he pointed to a need for better, smarter industry regulation. When he was a securities trader in the 1970s there was a clear difference between a mutual fund, an investment bank and an insurance company, and accordingly they all had separate regulators, he said. But now that everyone offers pretty much every kind of financial product the regulatory landscape has become confusing and complex. "Agencies are overlapping unnecessarily while some areas are completely unregulated," he said.
This point was echoed in the next presentation, given by Blythe Masters, head of global commodities at JP Morgan Chase and newly elected chairman of SIFMA. Masters, who is credited with the invention of the credit default swap--described by Warren Buffet as financial weapons of mass destruction--described the current legislatory landscape as "a patchwork quilt with more holes than patches". When insurance company AIG collapsed, it was answerable to over 50 state and federal regulators, she said.
There followed a panel discussion on the future of regulation in a post-bailout world. The panel discussed the need for a financial stability regulator to sit on top of all other regulators to provide more transparency and reduce systemic risk. It is likely the Federal Reserve will take on this role, as it already has the knowledge, the staff and the tools to do this. The future of the Securities and Exchange Commission (SEC) meanwhile hangs in the balance. Some believe a merger with the Commodity Futures Trading Commission (CFTC) is imminent.
The panelists acknowledged that overcoming opposing political ideologies to get the right legislation through the US Congress will be a challenge. And considering that the current crisis is a global one, there will need to be a global effort beyond mere cooperation and coordination, if new regulation is to be effective. "Regulation must be global to avoid regulatory arbitrage," said Bob Greifeld, CEO of Nasdaq, who spoke later in the afternoon. NYSE CEO Duncan Niederhauer, speaking before him, said that the last thing the US needs is another Sarbanes-Oxley that will risk making the US less globally competitive.
Regulators around the world will need to come together and work out international standards. Having the same rules will not be enough--as the interpretation and level of enforcement may differ from country to country, said Mary Shapiro, CEO of the Financial Industry Regulatory Authority (FINRA), one of the morning's panelists.