The WSJ and Washington Post both appear to have gotten their hands on the Administration’s financial regulation “white paper” (the Post even has a pdf of it). I’ll write more on the subject tomorrow, but a couple of thoughts for now.
First, the new Consumer Financial Protection Agency seems like a big deal, and a good idea. It is also, reports the WaPo, already getting critics riled:
They … are concerned that a consumer agency could be overly restrictive, limiting access to loans and constraining financial innovation.
“This consumer protection agency would be deciding how people get to live as opposed to people getting to decide for themselves,” said Kelly King, chief executive of BB&T, a large commercial bank based in North Carolina.
What a load of hooey. We already have lots of regulations that decide how people get to live financially. It’s just that right now they’re all administered and in some cases written by agencies also charged with making sure banks are profitable. Guess what—protecting consumers and keeping banks profitable don’t always go together. There’s a lot to be said for separating the two tasks.
Another reasonably bold—and sensible—part of the proposal concerns over-the-counter derivatives. Reports the WSJ:
OTC derivatives that are considered “standard” will be required to be centrally cleared and executed on an exchange, according to the senior administration official. Customized contracts will face “high capital” charges, the official said, with additional transparency for all OTC derivatives either through depositories, clearing houses or exchanges. The move appears aimed at encouraging standardized OTC derivatives.
What’s missing from the proposal is any kind of plan for breaking up too-big-to-fail institutions, or for dividing the financial sector between firms that take big risks and those that provide essential services (a modern-day version of Glass-Steagall). The Obama Administration would apparently prefer to keep dealing with the handful of big banks (among them a couple of former investment banks) that have survived the crisis, hoping that more stringent capital requirements will keep them from getting us all into trouble again. But gaming capital requirements is what banks do. For the next decade or two I imagine regulators will do a pretty good job of policing this. Eventually they won’t.