September 3, 2010
The new U.S. legislation for the financial sector is now one month old. It rewrites the rules in every branch of finance including consumer protection, derivative-product trading and bank risk management. At the same time, regulators around the world are also redesigning other national financial regulations. Three developments have caught my attention:
In conclusion, despite all the gloom in the capital markets these days, the financial reform seems to be on the right path. The cornerstone of a stronger financial infrastructure is definitely higher capital requirements. But the world of finance is complex and there is no silver bullet for instability. Capital requirements can be, to a certain extent, circumvented with accounting tricks, financial engineering and all sorts of legal structures. Therefore, the problems plaguing the financial system must be attacked on several fronts including shareholder rights and financial-distress procedures. The challenge going forward will be enforcing these regulations in ways that effectively foster stability but don't paralyze the economy with bureaucracy.
Chairman of the Investment Committee
and Director of Research
PWL Capital Inc.