Newswise — Robert C. Hockett, professor, Cornell University Law School. Hockett is an expert on organizational and financial law, and economic globalization.
He says:
“Sen. Christopher Dodd's bill is a tentative step forward toward long-awaited improvements to our presently hole-riddled system of financial regulation. Dodd’s bill has several key attributes:
“First, it imposes more-careful oversight of firms and potentially requires downsizing of firms that approach 'too big to fail' size, while also requiring these firms -- rather than taxpayers -- to finance a sort of ‘bailout insurance’ fund.
“Second, it imposes greater transparency and safety on the over-the-counter derivatives market, in part by channeling more derivatives trading through exchanges of the sort that most other securities have been trading on for decades, and in part by imposing buffer capital requirements on firms like AIG, which in recent years promised much more than they could deliver.
“It also will end the current regulatory privileging of the credit-ratings industry, which failed spectacularly in assessing the risks posed by subprime-mortgage-backed securities.
“The bill creates a Consumer Financial Protection Bureau, charged with looking out for the interests of less sophisticated clients of financial services firms. This new bureau would have its own funding, its own rule-making authority, and its own leader chosen by the President and confirmed by the Senate.
“It will bring the executive and trading desk pay practices of large financial firms – many of which reward successful risk-taking while not penalizing unsuccessful such risk-taking – under careful Fed oversight.
“Dodd’s bill extends the orderly wind-down authority currently held by the FDIC with respect to commercial banks, to cover other large financial firms -- most of which now pose systemic risks to the broader economy as fully as commercial banks do.
“Finally, the bill formally recognizes the need of a ‘systemic risk regulator’ charged with overseeing the whole of our vast, sprawling, complex finance economy, and assign this role to that regulator best situated to fulfill it -- the Fed.”
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