By: Senator Judd Gregg
In the five years since the global financial crisis there has been dramatic change in the structure and regulation of America's financial and capital markets directed at having a stronger and better capitalized banking sector.
One thing that has not changed is that the American economy is a market economy. We are a nation that has produced unequalled prosperity as a result of having a single, integrated and inter-dependent market system. It is a system built by hard-working people willing to take risks, every day, based on a belief their hard work and good ideas will win out. These folks are backed by other people willing to fund that belief.
Nowhere in the world does this relationship function as it does here. It is unique. It is the American advantage. But, it should not be taken for granted.
The ability of small businesses, people on Main Street and large industries whether in Silicon Valley or in Epping, New Hampshire to prosper depends on continuing to have access to strong capital markets and credit. Regulating and managing the providers of this capital and credit needs to be done with the understanding that our economic growth and strength is tied to the critical relationship between those providers and people and businesses who are our economic engine and job creators.
There are many reasons to feel positive about this unique relation.
Because of voluntary actions and compliance with new regulations, our financial system is in a much stronger position than it was five years ago.
Since 2009, banks have dramatically increased capital levels to provide buffers against unexpected losses. Banks are subject to rigorous annual stress tests to determine capital and liquidity adequacy under severe economic and market conditions. Dodd-Frank required them to submit ‘living wills’ to regulators detailing how they would wind down in the event of a failure. Additionally, under Dodd-Frank, investment banks are now subject to liquidation by the FDIC, in the event of failure. The derivatives market, where financial and non-financial companies manage risk, has undergone a major regulatory overhaul; most of the swap market is now subject to mandatory central clearing and trading rules, among many other requirements. Regulators will also finalize rules restricting the trading activities of banks and their affiliates and the requirement that underwriters and originators retain a portion of the risk associated with securitized products.
One thing that should be obvious is that risk cannot be regulated out of a market economy. Risk is a key element and necessary component of economic growth and job creation. It must be addressed in a constructive and logically manner that allows for economic expansion while trying within reason to avoid excess and certainly while allowing the market to work by not having organizations which are deemed to be big to fail. Free markets expect failure.
The Banking and capital markets system of today is much stronger, more vibrant and much more resilient than five years ago. It is ready and willing to play its part in assuring that our economy continues to grow, prosper and create jobs. It is ready to continue helping Americans succeed and Main Streets prosper.
Senator Judd Gregg, SIFMA CEO
Register for the SIFMA Annual Meeting 2013:Helping Americans Succeed, Helping Main Street Prosper, this November 11-12 in New York.