CHAIRMAN DONALD E. POWELL
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
AN FDIC SYMPOSIUM ON
THE FUTURE OF FINANCIAL REGULATION: STRUCTURAL REFORM OR
STATUS QUO?
WASHINGTON, DC
MARCH 13, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-22-2003 (03-13-03) Rosemary George (202) 898-6530
Good morning. It is wonderful to see you all here this morning - you honor us and the
FDIC by your attendance.
We are here today to listen to the views of many of our stakeholders about a very
important issue: the future of our country's system of financial regulation. We
acknowledge there is no crisis surrounding this issue, and no groundswell for reform.
Our discussions here today reflect FDIC's conviction that the absence of crisis is
perhaps the best time to discuss an important issue like the one before us today -
because it allows for the deliberation and careful thought needed to arrive at a sensible
conclusion.
We also recognize that this issue has been studied many times since the current
structure was created in 1933. Restructuring has become an almost mythical goal - long
sought but never attained - for many banking policymakers. It is similar in many
respects to the eternal quests for hair restoration treatments that work, a cheap and
limitless power supply, and a simple 1040 tax form.
The fact that we have discussed the current system for so long without meaningful
change may well indicate the system doesn't need revision. But history is also littered
with examples of longtime efforts finally bearing fruit. It took 66 years for man to go from
horse and buggy to the moon. It took 74 years to win the war against communism. It
took 94 years to go from James Naismith's peach basket to the coming of Michael
Jordan. And it took 45 years for the Texas A&M Aggies to win their first national
championship. That was 1939, by the way. Some of us are still awaiting a repeat.
Last May, when I addressed the Federal Reserve Bank of Chicago's Conference on
Bank Structure and Competition, the focus of my remarks was on how we could
improve our efficiency and effectiveness as regulators. We suggested a discussion
about how our regulatory structure could be improved. Today's symposium is one step
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
AN FDIC SYMPOSIUM ON
THE FUTURE OF FINANCIAL REGULATION: STRUCTURAL REFORM OR
STATUS QUO?
WASHINGTON, DC
MARCH 13, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-22-2003 (03-13-03) Rosemary George (202) 898-6530
Good morning. It is wonderful to see you all here this morning - you honor us and the
FDIC by your attendance.
We are here today to listen to the views of many of our stakeholders about a very
important issue: the future of our country's system of financial regulation. We
acknowledge there is no crisis surrounding this issue, and no groundswell for reform.
Our discussions here today reflect FDIC's conviction that the absence of crisis is
perhaps the best time to discuss an important issue like the one before us today -
because it allows for the deliberation and careful thought needed to arrive at a sensible
conclusion.
We also recognize that this issue has been studied many times since the current
structure was created in 1933. Restructuring has become an almost mythical goal - long
sought but never attained - for many banking policymakers. It is similar in many
respects to the eternal quests for hair restoration treatments that work, a cheap and
limitless power supply, and a simple 1040 tax form.
The fact that we have discussed the current system for so long without meaningful
change may well indicate the system doesn't need revision. But history is also littered
with examples of longtime efforts finally bearing fruit. It took 66 years for man to go from
horse and buggy to the moon. It took 74 years to win the war against communism. It
took 94 years to go from James Naismith's peach basket to the coming of Michael
Jordan. And it took 45 years for the Texas A&M Aggies to win their first national
championship. That was 1939, by the way. Some of us are still awaiting a repeat.
Last May, when I addressed the Federal Reserve Bank of Chicago's Conference on
Bank Structure and Competition, the focus of my remarks was on how we could
improve our efficiency and effectiveness as regulators. We suggested a discussion
about how our regulatory structure could be improved. Today's symposium is one step
in that direction. We hope each of you will come away with a new understanding and
new insight into the issues surrounding reform.
Today I want to raise a fundamental question that has been raised many times before:
Does the current regulatory arrangement make sense for today's financial system? In
my view, there may be valid reasons to question the suitability of our current structure.
First, I am concerned about the increasing disconnect between the industry and our
regulatory arrangements. It is clear that the marketplace is leading the way into new
lines of business, new combinations and new products - whether on the retail or
wholesale side of the business. Some would say we regulators have not kept up. We
must keep up, however, in order to ensure that market innovations do not conflict with
the public's basic interest in a safe, sound, and stable financial infrastructure.
Let me give you an example. The technological revolution of the past decade has led to
astounding innovations in the hedging of risk and structured finance. In fact, Warren
Buffet recently brought to the fore a number of concerns about derivatives that are
certainly worthy of the regulators' attention. While the FDIC and others continue to
monitor these issues and work on sound policy responses, I don't think anyone can
argue that we are moving as fast as the industry in these areas. And this is just the tip of
the iceberg. As the pace of change accelerates in the industry we regulate, I am not
convinced the current regulatory structure - with its layers of checks, balances, and
countervailing forces - is nimble enough to keep up.
Further, a fragmented financial regulatory system may not be well equipped to deal
effectively with emerging problems, such as those that surfaced recently in large-scale
corporate failures. While products and financial strategies continue to blur the lines
between banking, insurance and securities products, the regulation remains largely
fragmented. This concern was raised most recently by a U.S. Senate report on Enron's
creative financing, urging greater cooperation between banking and securities
regulators to ensure the regulatory gaps are filled. The incremental decision-making that
created our system was effective at dealing with the problems of the moment. But it left
us with a system that - in the aggregate - seems crowded, costly, inefficient, and not
really reflective of today's financial sector.
Second, market evolution and innovation have resulted in unprecedented convergence
and consolidation in the financial services industry. Very large institutions have
emerged, competing with smaller, more traditional banking companies. Complex new
products, such as structured finance vehicles, are commonplace. With such dramatic
change in the industry, we need to consider carefully whether our longstanding
regulatory structure still fits the bill. Does convergence warrant a consolidated
regulator? Does it warrant an enhanced umbrella regulator? I hope we explore these
questions today.
new insight into the issues surrounding reform.
Today I want to raise a fundamental question that has been raised many times before:
Does the current regulatory arrangement make sense for today's financial system? In
my view, there may be valid reasons to question the suitability of our current structure.
First, I am concerned about the increasing disconnect between the industry and our
regulatory arrangements. It is clear that the marketplace is leading the way into new
lines of business, new combinations and new products - whether on the retail or
wholesale side of the business. Some would say we regulators have not kept up. We
must keep up, however, in order to ensure that market innovations do not conflict with
the public's basic interest in a safe, sound, and stable financial infrastructure.
Let me give you an example. The technological revolution of the past decade has led to
astounding innovations in the hedging of risk and structured finance. In fact, Warren
Buffet recently brought to the fore a number of concerns about derivatives that are
certainly worthy of the regulators' attention. While the FDIC and others continue to
monitor these issues and work on sound policy responses, I don't think anyone can
argue that we are moving as fast as the industry in these areas. And this is just the tip of
the iceberg. As the pace of change accelerates in the industry we regulate, I am not
convinced the current regulatory structure - with its layers of checks, balances, and
countervailing forces - is nimble enough to keep up.
Further, a fragmented financial regulatory system may not be well equipped to deal
effectively with emerging problems, such as those that surfaced recently in large-scale
corporate failures. While products and financial strategies continue to blur the lines
between banking, insurance and securities products, the regulation remains largely
fragmented. This concern was raised most recently by a U.S. Senate report on Enron's
creative financing, urging greater cooperation between banking and securities
regulators to ensure the regulatory gaps are filled. The incremental decision-making that
created our system was effective at dealing with the problems of the moment. But it left
us with a system that - in the aggregate - seems crowded, costly, inefficient, and not
really reflective of today's financial sector.
Second, market evolution and innovation have resulted in unprecedented convergence
and consolidation in the financial services industry. Very large institutions have
emerged, competing with smaller, more traditional banking companies. Complex new
products, such as structured finance vehicles, are commonplace. With such dramatic
change in the industry, we need to consider carefully whether our longstanding
regulatory structure still fits the bill. Does convergence warrant a consolidated
regulator? Does it warrant an enhanced umbrella regulator? I hope we explore these
questions today.