By Sen. Tim Johnson (D-S.D.) - 03/16/10 10:06 PM EDT
The proposal establishes a systemic risk council to watch for trends in the economy that may signal risks within a single institution or across the economy as a whole. This council is given the tools to notify regulators of these concerns and act to diffuse the risks. Had this council been in place before the crisis, it’s possible that we could have identified problems in the housing market, including unsound mortgages that were risky for investors and our economy, much earlier. It also could have identified the improper use of exotic debt instruments by “too big to fail” financial institutions.
The proposal would also establish a workable resolution authority to identify unsound and failing nonbank financial companies, and create a process to unwind them if they fail. This would ensure that the American taxpayer does not have to finance another round of bailouts. The plan would also regulate exotic financial products like credit default swaps and other over-the-counter derivatives that went unregulated before the crisis. This change will address many of the factors that caused the failures of AIG, Lehman and other institutions.
Also important is that this proposal establishes a common-sense system that consolidates and streamlines the regulation of financial institutions that was previously spread across many agencies. It also makes the Federal Reserve more accountable and transparent, gives the Fed regulatory responsibilities that match its expertise, and holds irresponsible CEOs of Wall Street firms more accountable to Main Street shareholders.
This bill finds a balanced approach to address the many concerns about consumer and investor protections. While redrafting this legislation over the past few months, we learned that it is less important where new consumer protection responsibilities are housed within our regulatory system than if the new changes are effective in targeting the products, services and firms that exploited consumers and investors in ways that contributed to the crisis.
In addition to the vital policy changes outlined above, I applaud the creation of the Office of National Insurance, which will provide much-needed national and international insurance expertise to the federal government, reducing a blind spot in federal understanding of the health of our financial services marketplace.
I’m also pleased that the chairman’s current version of the legislation includes language I helped draft to improve investor protections by requiring the SEC to fill in the regulatory gaps on services provided by broker-dealers and investment advisers. Given the options before us, I believe the inclusion of a study and directed rulemaking by the SEC is a responsible and balanced approach to finding the right policy changes to address consumer confusion in these areas.
We cannot afford to delay a strong package of financial regulatory reforms any longer, especially as there continues to be plenty of additional work needed to put our nation’s economy back on solid footing. This bill will not be perfect or solve all the problems we face, but I believe it is a carefully crafted, thoughtful and comprehensive plan to address many important issues. Both Republicans and Democrats should recognize that this legislation is needed to reassure the American people that Congress is working to restore the economy and is on the side of consumers and small-business owners.
Johnson serves on the Senate Banking Committee.