Regulatory Significant Deficiencies

Yesterday, the CEOs of the eight major U.S. financial institutions testified before Congress on their participation in the Troubled Asset Relief Program (“TARP”).  One of the CEOs, J.P. Morgan Chase’s Jamie Dimon, pointed out the need for the modernization of the U.S. financial regulatory system.  Here’s his view:

“The ongoing financial crisis has exposed significant deficiencies in our current regulatory system, which is fragmented and overly‐complex. Maintaining separate regulatory agencies across banking, securities and insurance businesses is not only inefficient, but also denies any one agency access to complete information needed to regulate large diversified institutions effectively and maintain stability across the financial system. It also results in uneven and inequitable regulation of similar activities and products across different institutions.

I am in complete agreement with Chairman Frank that Congress and the President should move ahead quickly to establish a systemic risk regulator. In the short‐term, this would allow us to begin to address some of the underlying weaknesses in our system and fill the gaps in regulation that contributed to the current situation.

As part of a longer‐term modernization discussion, we stand ready to work with Congress and others to think through any number of complex issues. But waiting for the larger debate over regulatory reform to play out could take months. Every credible regulatory modernization plan includes the creation of a systemic risk regulator, and everyone agrees that this needs to be done – and done right away. I hope Congress will act to get this critical building block in place.”

A good portion of the stimulus bill before Congress should be dedicated to regulatory modernization and as Mr. Dimon suggests, invested immediately.