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Op-Ed: Delaware Voice: Financial Reform Bill Is A Start, But Its Deficiencies Must Be Addressed


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Source: The News Journal

By Sen. Ted Kaufman

For over a year, Congress deliberated on how best to reform a financial system that ran amok and led our economy to the brink of collapse, sending us spiraling into the worst recession since the 1930s.

I was there last month when President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law.

This bill is a vast improvement over our existing financial regulatory structure and includes many critical reforms: a new and independent consumer protection bureau, a strong and comprehensive regulatory system for those complex financial instruments known as derivatives, and strengthened capital standards for megabanks.

It is not, however, a perfect bill. Indeed, it suffers from two major shortcomings, which I had addressed repeatedly and at length on the Senate floor. First, it does not do enough to protect us from banks that are "too big to fail." Instead of erecting enduring statutory walls that would keep banks out of the riskiest financial businesses, as we did in the 1930s, the bill places its faith in the discretion of regulators and international agreements on bank capital requirements. Rather than shrinking the size of our largest banks before the next financial crisis occurs, the bill waits until that day to try to "resolve" failing megabanks through a complex resolution mechanism that would theoretically unwind them from their web of links with other megabanks, without taking those other banks down as well.

Second, the bill too often defers authority to regulators at the very same agencies that failed to prevent the last financial crisis. Despite repeated urging from me and others to pass laws that would establish clear and hard lines to help regulators succeed, Congress largely decided to punt on hundreds of key decisions. According to the law firm Davis Polk, regulators will be responsible for undertaking no fewer than 243 rulemakings and 67 studies. The Securities and Exchange Commission alone will have to write 95 rules and conduct 22 studies.

Although the sheer number of rulemakings and studies reflects the dramatic scope of the bill, the responsibility of such a regulatory burden threatens to undermine the ability of these agencies to accomplish their normal day-to-day missions.

The SEC, for example, will have new rulemaking and oversight responsibility for everything from derivatives to credit rating agencies, private fund registration to investor protection, and securities disclosures to corporate govern- ance.

As it moves forward with this expanded role, the commission cannot neglect nor give short shrift to its ongoing responsibilities, especially its ongoing review of equity market structure and high-frequency trading, the integrity of which is so central to protecting the credibility of our stock markets.

Congress must take seriously its important role in overseeing the enormous regulatory process that will now take place. In particular, we must ensure that regulators follow through on the enormous responsibilities they are being given, and that they have adequate resources and staff to do so. Already I have expressed concerns about recent proposals for international bank capital standards, which threaten to be weak and even non-binding.

Reforming our nation's financial system is imperative and has only just begun.

The stakes could not be higher.

The systematic dismantling of our regulatory structure over three decades and years of Wall Street malfeasance combined to send our financial system into cardiac arrest.

Ted KAUFMAN is the junior U.S. senator from Delaware.

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