SEC’s Response to Regulatory Overhaul

Christopher Cox is a lame duck; the incoming administration will be appointing a new head of the SEC.

How hard will he fight to defend the agency's turf? His official statement on Paulson's plan does not reveal much:

"Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility. Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides. The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets." sec.gov

Trying to stifle your yawns as we close out the quarter. I am going to leave much of the debate to others and keep digging for news of hedge fund implosions, which makes for more compelling reading. But if you need a soundbite over Paulson's plan, Larry Summer's is your man:

As he told the Wall Street Journal, "It's probably a bad idea to spend too much time debating the organization of the fire department while the fire is still burning"

Of course, the infighting over government jobs is likely to play a role in the process. And while Cox will skip away while SEC staffers twist in the wind, the outlook for Federal Reserve staffers is up in the air as well. Greg Ip weighs in on the subject:

The reserve banks in recent years have had to cut staff heavily mostly because of the decline in the business of clearing checks (due to the rise of debit cards, electronic bill payment, and check imaging). Their supervisory roles have been curtailed as mergers have left some districts with few, if any, major banks. Even so, 2,676 or 13% of the banks’ total 19,828 budgeted employees last year were involved in supervision and regulation (more than double the number devoted to monetary and economic policy). Losing those employees would be another blow to the prestige and purpose of the banks. At the board, about the same percentage of its 2,002 employees are devoted to supervision and regulation. But research and monetary policy are comparatively far more important, employing 467 employees or almost a quarter of the total.

The reserve banks “are scrambling to keep jobs and figure out what their role is,” said Robert Eisenbeis, former research director at the Atlanta Fed. “If you took supervision and regulation away, that would be another big problem. It’s a case where the board doesn’t want responsibility for the micro side, they just want the policy.”

Of course, there is one big winner here. The Plunge Protection Team.

Statement of SEC Chairman Christopher Cox Regarding Blueprint for Financial Regulatory Reform
SEC

The Fed’s Regulatory Future
WSJ

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