Volcker: US has an impossible regulatory structure

Former Federal Reserve chairman Paul Volcker thinks the growing complexity of the financial markets makes it difficult for US regulators to come to a consensus on what will improve the economy and governance.

Is the regulatory system in the US in need of repair? Former Federal Reserve chairman Paul Volcker thinks so. In a keynote address at the Latham & Watkins Thought Leadership Forum in New York on March 5, he suggested that the growing complexity of the financial markets has made it more difficult for US regulators to come to a consensus on what will work best to stimulate growth and fight fraud. As a result, we’re getting inaction that is bad for the economy and bad for governance.

Regulation of the financial markets is critical, but it seems the regulators can’t get out of their own way to get things done. As Volcker pointed out: ‘It’s more than two and a half years since Dodd-Frank was passed and the most important parts of the bill still haven’t been adopted. 

He laid the blame for this at the feet of ‘five agencies, inherited from the past, that have a say in determining the situation.’ Those five regulatory bodies, which he didn’t name directly, all have different constituencies, different priorities and different ideas about what needs to be done. As a result, they are often in conflict with each other and very little gets done. It’s all a bit like what’s been going on in Congress. 

The key message for the evening was this: the financial markets will not function efficiently if the regulatory system is dysfunctional. ‘It’s an impossible regulatory structure,’ Volcker said. 

So how do governance professionals function in ‘an impossible regulatory structure’? By becoming innovative. The governance community is full of brilliant people, many of whom could run some of the five regulatory agencies Volcker believes need to get their act together. For sure, some of that brilliance is being used to study current legislation to find ways to comply with laws that haven’t yet been enacted. That’s the job governance professionals do every day. But maybe some of their brilliance needs to be put toward developing suggestions for a simpler regulatory structure to allow the US to make regulatory decisions that will keep financial markets running smoothly and safely.

It seems some people are always clamoring for ‘less regulation’, as if fewer safeguards will make us safer in a world where people create and sell financial instruments they themselves don’t fully understand. Maybe the answer is ‘more co-operative and innovative regulators’ who can produce the ‘right legislation’ in the first place.

Consider yourself one of ‘the new regulators’ – and get to work.


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