University of Memphis Symposium on Financial Services Reform

Today I am at the University of Memphis Symposium on Financial Services Reform. One of the early speakers was Professor Saule Omarova, from University of North Carolina School of Law. Her paper, co-authored with Professor Adam Feibelman, also from UNC, "Risks, Rules and Institutions" takes up the Treasury Blueprint's proposals for reforming our regulatory structure. Professor Omarova advocates a triple peaks framework for financial regulation: a market regulator (the Federal Reserve), a supervisory regulator and a market conduct regulator. Professor Omarova urges that regulatory action should be taken up soon before political and market will lapses when the immediate crisis is contained.

Crisis prevention is oft put off, but is an important part of addressing the underpinnings of the reasons that have led to the current crisis. The general framework is important because many of the particular financial products that contributed to the current crisis will not present in the same way, but different products can create problems. Prior to restructuring the financial industry, greater understanding of the current (and perhaps future) activities that might lead to market failures is needed. Our past notions of industry business may not lead to the optimal structure. The main concern is that in the rush to act, we might make the wrong regulatory choices.

I tend to agree that the political will to make change may be overshadowed by the fighting of the crisis itself. Moreover, financial products change over time. We really don't know how these products will be packaged in the future. Securitization itself, for instance, might not be the root of the financial problems. Rather, the way in which securitization has been used and the particular modelling of risks.

Professor Amarova's paper will appear in the Memphis Law Review.

— JSM