We'll be interested to see how the Fed and New York Fed chairs handle inquiries about Bear Stearns during two days of testimony on the Hill. They may not be able to avoid saying something substantive about the bailout, but if the SEC is any guide, they'll opine inscrutably about the wisdom of the regulatory reform proposals that followed it. SEC Commissioner Atkins said yesterday
Treasury is proposing .... the unification of the SEC and CFTC and a shift towards principles-based regulation. The latter would require radical adjustments by regulators and industry alike. The SEC would have to depart from its often very prescriptive approach to rulemaking. The financial industry would have to be weaned from its tendency to seek the protection that specific rules afford from later second-guessing and — if the rules serve as barriers to competition — from would-be competitors.
As to a possible merger between the SEC and the CFTC, ...[i]t is not surprising, then, that calls for a consolidation of the agencies have increased. Whether a merger ought to happen is a question for Congress and the Administration — it is certainly beyond my power as a Commissioner.
Hmmmm. It's not exactly a bottom line, but it is not uninteresting, particularly because of Atkins' view on the low-cost merits of principles-based regulation. Does principles-based regulation has lower barriers to entry than does rules-based regulation? Much depends on how it is done. The former can be administered in quite a clubby, exclusive way, after all, and affords regulators a lot of discretion as to who they pick on. I'd be interested to know if, say, the German financial industry thinks that its regulators have helped to create open and vigorous competition in Frankfurt through their principles approach.
For its part, SIFMA sounded vaguely supportive of the reorg, calling it a "thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes." Christopher Dodd, chair of the relevant Senate regulatory committee, called it a "wild pitch." So which is it? Expect Bernanke, if he says anything about the plan, to veer towards the former account.
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1. Posted by M.D. Fatwa on April 2, 2008 @ 12:01 | Permalink
I always find the "rules versus principles" debate both annoying and disingenuous. After all, there's nothing more principles-based than Rule 10b-5. That said, Atkins is correct when he touches on why we have so many rules in the U.S. When your regulator has teeth (as opposed to the UK FSA and the German BaFin), rules are a nice safety blanket.
2. Posted by Jake on April 2, 2008 @ 21:03 | Permalink
From the feasilibity and efficacy viewpoints, so-called "principles based" rule making is a chimera -- unless of course one assumes the principles, and their enforcement, are handled by nondemocratically appointed, authoritarian governmental bureaucrats.
3. Posted by David on April 2, 2008 @ 21:09 | Permalink
M D Fatwa - you say rules are a safety blanket because of the safe harbors they create? Perhaps so....but both principles and rules have their undemocratic aspects.
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