Regulatory Turf Wars Gaining Steam

Lots of buzz this week about future oversight of the financial markets. While GlobalRiskJobs and GlobalComplianceJobs have been anticipating significant changes in the regulatory landscape, the political landscape has thus far provided more of a speed bump to true reform than initially thought. The Obama Administration is (finally) expected to finish up a plan to present to Congress by the end of June, but the timetable for any reform plan to be approved by Congress looks like the end of this year. The Obama administration has been pushing a more radical reform agenda, while existing regulators naturally have sought to defend their existing turf. As a result, no firm regulatory structure has yet to emerge. The primary issue seems to be whether to reorganize the basic structure of oversight, or whether to implement new rules at existing agencies that would accomplish the same end. It would seem that, given the scope of this crisis, if there was ever a time where legislators and te public would be willing to accept a radical overhaul, now would be it. The adminsitration has had its hands full with the issue of bank supervision, and the Office of Thrift Supervision (OTS) which has come under fire for its seeming impotence in the AIG, WAMU and IndyMac fiascos is likely to be sacrificed first in the name of reform. Also on the table is a merger of the SEC and the CFTC, although House Financial Services Committe Chairman Barney Frank is not a supporter of such a move. Another political sticking point surrounds the idea of a systemic risk regulator. Treasury wants the Fed to become a financial market uber-regulator responsible for systemic risk, although many politicians and regulators are reluctant to concentrate so much power at the Fed. As mentioned last week, a new Financial Products Safety Commission has also been proposed, although Mary Schapiro naturally opposes any threat to diminish SEC power and lashed out against the idea. Another battle on the Hill is brewing between Frank and House Agriculture Committe Chairman Collin Peterson surrounding who will get authority to regulate credit default swaps. The Ag Committees in Congress traditionally oversee the CFTC and oppose any challenge to their authority.

The Links:

• The FT details some of battles being fought over bank regulation.
  
• Bloomberg's Alison Vekshin has written a good profile of FDIC Chief Sheila Bair.
• Wall Street is having its say in the battle over derivatives regulation. Banks want to preserve the intra-dealer market and raise barriers to new entrants to keep the OTC business as compartmentalized as possible.
• The FT believes regulatory authority in the US should be assigned by function, not product.
• EU banking regulators may get the power to overrule national banking authorities under new plans in the works as a response to the financial crisis.
• The WSJ comments on the derivatives PR war going on inside the Beltway.