While it is not possible to know how today’s financial crisis will unfold, the one certainty is that there will be a wave of new financial regulation in the US. The US Treasury has just released its “blueprint” and both Houses of Congress are preparing their own legislative proposals. Nevertheless, both efforts are bound to fall short of what will be required. Certainly the overwhelming focus for the US Treasury in its recommendations is organisational reform and not the content of regulation. As such, it must be considered no more than an opening gambit. As for Congress, its preoccupation with the immediate housing crisis, which is soon to be embodied in a law easing pressure on homeowners, will also have to be enlarged.
Here is just a sampling of the important issues that eventually need to be discussed in Washington and on Wall Street, besides the consolidation of the fragmentary regulatory structure and housing foreclosures. They include: new standards for future mortgage financing; enhanced protection for investors and homeowners; constraints on complex securitised financing, including global standards for valuation and disclosure; deeper capital cushions and enhanced supervision of investment banks and other “non banking” institutions; changes in the operations of credit-rating agencies; and internationally co-ordinated scrutiny of global banks and brokerages.
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