COLUMN: Regulatory Balancing Act
Ludwig, Eugene A., American Banker
Byline: Eugene A. Ludwig
Just as implementation of the sweeping Dodd-Frank Act of 2010 is getting under way, President Obama and House Speaker Boehner have put a stake in the ground on the importance of sensible, not excessive, governmental regulation for the 21st century.
Their timing is auspicious, because bipartisan cooperation on this matter is urgently needed. Excessive regulation robs America of an innovative and vibrant economy and accordingly, as the President rightly points out, deprives Americans of job opportunities. In order for much-needed financial regulatory reform to be successful, we must tilt toward regulation that promotes a safe and sound financial system but lean away from regulation that hinders growth and competition. It is a difficult and delicate, but not impossible, balancing act.
In our technologically driven and fast-paced world, even well-crafted rules can quickly become obsolete. In the complex area of regulation, the vigor and thoughtfulness with which efforts are made to minimize burden and waste will prove every bit as important as the wise policy direction itself.
Make no mistake, the regulatory morass is enormous, complex and genuinely costly. Taken together, globally coordinated regulations such as Basel capital standards and myriad national regulations are expected to dampen GDP across the U.S., the euro zone and Japan by a cumulative 3.1% through 2015, according to the Institute of International Finance. Consider also that the President's 2012 budget proposal would add $6.5 billion and 5,000 people to the government for implementation of Dodd-Frank, which requires the enactment of some 300 new rules. More than 60 of these rules require joint implementation among several regulators. Unless great care is taken, these rules are likely to be mind-numbingly complex. And importantly, in recent years, the lack of accountability and vested authority among the respective financial regulators was a key contributor to the crisis. So as regulators sort through the new Dodd-Frank rules, establishing clear lines of accountability and authority must be a top priority.
As comptroller of the currency from 1993 to 1998, I saw firsthand how regulation can both benefit and strain our financial system. Every new regulatory requirement and responsibility takes time away from the management of companies - time that could otherwise be used to make the firm more productive, innovative, competitive and safe. Rules and regulations must hit close to the center of the target in the most effective and efficient way possible. …