Bernanke sketches out regulatory philosophy

"At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future. We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves for achieving this aim."

--Ben Bernanke, 10 March 2009, Speech to the Council on Foreign Relations

It seems like it's all starting to crystallize on the regulatory front. Yesterday, Fed Chairman Bernanke took another step forward by urging a major overhaul of U.S. financial regulations aimed at containing the future volatility of financial markets and continued that theme this morning in his speech to the CFR. The Chairman went on to sketch out what he views as the 4 key elements of any strategy: 1) address the problem of "too big to fail", 2) strengthen the financial "infrastructure", 3) review regulatory policies and accounting rules to ensure they don't induce "excessive procyclicality", and 4) consider whether the creation of an authority specifically charged with monitoring and addressing systemic risks would protect the system from future crises similar to this one. It certainly appears as though Bernanke is sowing the seeds of increased Fed power in the future regulatory scheme. Congress is currently considering how to regulate systemic risk but has yet to agree on which agency should assume that power. Barney Frank has been "Fed-friendly" in his views, although Chris Dodd has taken the opposite stance, wondering if the Fed is up to the task. With no obvious model for success out there, the next few weeks will be crucial to shaping the new regulatory environment. Bernanke appears to be ready and willing to use his post to advocate for the central role. And as the nation embarks upon this path to reform, toay's WSJ has an interesting primer of sorts called "Ten Questions for Those Fixing the Financial Mess". It contains profiles of the six major regulators - CFTC, FDIC, Fed, OCC, OTS and SEC - and speculates as to how thing might unfold in the coming weeks. Stay tuned, as the battle for the future has begun.

The links:

• Meredith Whitney is feeling the power. Fresh off formation of her own firm, she's grabbed the spotlight in today's WSJ to warn against what she sees as the next credit crunch: credit cards. Bloomberg says Canadian losses may be a bellwether on the credit card front.
  
• Yesterday, GlobalRiskBlog reported on BofA's decision to rescind offers to foreign MBAs. Today's NYT has a follow-up story about the H1-B quandary.
  
• From the NYT Science Section of all places, a story on scientists who became Wall Street quants. A former Goldman MD compares options theory to physics.
• As the rating agency vigilance pendulum swings back toward extreme caution, Moody's is trying to get out in front of corporate bankruptcies.
• The FHLB of Seattle has fallen short in one of its capital requirements.
• Citigroup employees are reminded about the bank's "compliance culture" in an internal memo.
• The FSA has added David Kirk as Chief Criminal Counsel.