Regulators are failing at regulating
Dick Kovacevich, chairman emeritus of Wells Fargo, and Bill Isaac, former chairman of the FDIC and global head of financial institutions for FTI Consulting, feel that regulatory supervision has been politicized. December 05, 2011 | Richard Kovacevich and William IsaacThe people who think that laws can be put in place that are going to eliminate risk just don’t understand the real world. The recent Dodd-Frank bill would not have prevented the last financial crisis, and it will not prevent the next financial crisis. Let us ask this rhetorical question: just what regulatory authority did banking regulators not have to reign in the risk taken by, say, Citigroup? We can’t think of any. The problem is not lack of regulatory authority, it is lack of regulatory effectiveness. MF Global is a perfect example and shows the problems that occur when regulators are incapable of auditing financial institutions to determine whether they are behaving in a manner that is consistent with safety and soundness. We are very concerned that people actually believe that you can write regulations, and not have to do anything else, as a way of solving problems. It just doesn’t work that way—regulating banks involves knowing the culture of the company, the tone at the top, understanding how decisions are made, and looking inside and knowing what’s going on every day. Regulators failed to adequately supervise, which is one of the major reasons the financial crisis got as big as it did. They’ll fail the next time, too, because if we don’t put the blame where it belongs, we’ll never make the necessary corrections. What somebody should be saying in the MF Global case is “we thought that Dodd-Frank was supposed to solve this problem—the act was just passed and we’ve already got another spectacular failure. What happened?” Our sense is that the professional staff of financial regulators would be better at their jobs if they were more insulated from politics. Dodd-Frank imposes more political interference, not less. Supervision, today, is more form than substance: checking the boxes and doing stress tests. Our belief is that too often regulators do not know how to supervise—they do not know what’s really imp... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Regulation, Risk and Regulationriskregulation,Risk and Regulation, Regulation,Risk and Regulation, Keywords:Wells Fargo, FTI Consulting, Regulatory Supervision, Dodd Frank, MF Global Wells Fargo, FTI Consulting, Regulatory Supervision, Dodd Frank, MF Global
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