Rationalizing U.S. Financial Regulation: The Treasury's Plan
Financial and corporate crises bring regulation; the bigger the crisis, the more the regulation. A few years ago, major corporations, particularly Enron and WorldCom, were engulfed in scandals. Coming hard upon the bursting of the dot.com bubble and revelations of improper sales practices of Wall Street banks, these scandals were the catalyst for the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), a far-reaching reform of public companies. One forgets that, only about a year ago all the talk in financial and business circles focused on the need to roll back Sarbanes-Oxley, which was allegedly proving to be too burdensome for U.S. business. Regulation, or at least constraining regulation, tends to disappear only in the good times. As another example of this counter-revolutionary trend, in 1999 the Depression-era restriction on keeping separate commercial banks, investment banks, and insurance companies ended with the passage of the Gramm-Leach-Bliley Act. By contrast, in these dire times the voices for regulatory rollback fall silent and those for regulatory expansion are heard. In keeping with this pattern, the U.S. Treasury Department has just released a plan (the "Treasury Plan") for sweeping reform of financial regulation that is in part necessitated by the financial crisis, which has exposed problems in the regulation. Professor James Fanto explores what may be in store for us.