Trump should reform financial watchdogs. Here’s how
News that President-elect
No doubt, the current system is unwieldy. At the federal level - excluding an array of separate state regulators - three entities oversee banks, two supervise markets, one aims to protect consumers and another defends against financial crimes. Many large institutions must submit to all of them. Senior managers of an average bank today spend some 42% of their time on compliance-related tasks. Worse, such fragmentation at times allows risks to fall through the cracks.
Much of this system was designed decades ago for a simpler world. One glaring example is the separation of the
Today, when many financial companies trade in both markets, the two supervisors often overlap and don't always properly communicate. In 2011, after the chaotic bankruptcy of derivatives broker
Such bifurcation is anomalous by global standards, and policymakers have been talking about combining the two for decades. In a familiar tale, however, politics has taken precedence over common sense:
If Trump wants a relatively clear-cut reform, this would be a good place to start.
Merging the two commissions would help streamline the rules, reduce compliance costs and ease cooperation with regulators overseas.
It would be an ambitious change but not a radical one: Both a former CFTC commissioner and a current
Reforming banking oversight would be less straightforward. It's true that the
But this morass defies easy fixes; simply folding the
A better approach would be to create a single prudential authority charged with protecting the financial system.
The new body could be overseen by a board that includes representatives from the Fed, the
Such far-reaching reforms would require political skill and sustained effort, which were not hallmarks of Trump's previous term. The ambition is laudable all the same. In regulation as in life, simplicity is a virtue.- Bloomberg Opinion


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