Busch: Financial Regulatory Reform—Confusion and Delay
This NYT article by Gretchen Morgenson entitled, "It's Time for Swaps to Lose Their Swagger" provides a glimpse into what's going on with financial regulatory reform. Note how the article uses the term "swaps" for three different types of swaps: debt, credit default, and interest rate. All are extremely different in their function and to what exposure they they cover. Yet, they are all lumped together as the cause of numerous problems within the financial sector.
Given the current trouble Congress is experiencing getting a financial regulatory bill out of the Senate, this underscores some of the confusion about arcane financial products and confusion over how to address their risks (if any) towards the financial markets. FYI, there has been many predictions from the Senate banking committee that they will be producing a bill soon.......and then nothing happens. Serious disagreements continue to crop up and lack of agreement continues to plague the process. I expect a bill soon, but......
There is no agreement yet on the Consumer Financial Protection Agency or a similar regulatory body that focuses on consumer financial products.
There is slowly developing a Too-Big-To-Fail oversight body. The latest is to have a council housed at the US Treasury with the Fed nominating an institution and the council deciding if it will be wound down.
There is very little discussion on derivatives language and whether all derivatives will be thrust onto an exchange.
The Volcker Rule splitting proprietary trading out of banks looks like it's dead from a legislative standpoint, but will be part of a regulators guidelines.
Last Friday, the six hours of solid debate didn't lead to much momentum on that bill and took Congressional oxygen away from FRR. The biggest threat to a bill remains whether the Senate goes to reconciliation on health care and creates a scorched earth policy towards other legislation.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.