While acknowledging the need to fill regulatory gaps in the oversight of financial institutions, SEC Chairwoman Mary Schapiro voiced concern Thursday about creating a systemic regulator that might displace existing federal agencies. Schapiro appeared before the Senate Banking Committee to discuss ways to improve investor protections. When asked about the Treasury Department's proposal to create a single systemic regulator, the SEC chief said she was concerned "that we don't create a monolithic regulator that supplants the important functions served by multiple other agencies," particularly the SEC with its focus on "investors and investor protections." She said she supported "the concept of a systemic regulator or a college of regulators," but added that the "devil is in the details on this one."
Schapiro said the "college of regulators" concept, supported by Senate Banking Chairman Christopher Dodd, was "well worth exploring." She added: "Multiple regulators bring a lot to the table, whichever way we go," she said. "I think there is value to [having] a view across the markets." Both Schapiro and former SEC Chairman Arthur Levitt, who testified on a later panel, said it was important to have overlapping regulation to help fill in the gaps. Sen. Bob Corker, R-Tenn., said he was concerned the Treasury Department's proposal might give the government authority to move into any industry sector. Meanwhile, Schapiro expressed support for regulating hedge funds, credit default swaps and derivatives, but added that such regulations needed to be properly tailored. She also said the SEC would meet in April to discuss ways to control short selling. She said the "most advanced" proposal was reinstatement of the uptick rule, which allowed investors to bet against a stock only when the last sale price was higher than the previous price. But she said the agency was also considering other ideas, such as instituting a "circuit breaker" against short selling. Schapiro also voiced support for efforts to give shareholders greater influence over company boards when it comes to executive compensation, risk taking and other issues.
In his testimony, Levitt suggested that regulators need to scrutinize the municipal bond market -- which he called a "ticking time bomb" -- more closely. That market "has been growing to a size and complexity that is huge," he said. Sen. Jon Tester, D-Mont., asked what could be done to improve investor confidence. Fred Joseph, a Colorado regulator who testified for the North American Securities Administrators Association, said those licensed to sell securities need to be adequately prepared for that role. He also called on Congress to return authority to the states that was pre-empted under a 1996 law limiting their ability to catch fraud at its "earliest stages."
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