There was something for everybody to either embrace or revile in the Treasury Department's "Blueprint for a Modernized Financial Regulatory Structure" proposals that were presented by Treasury Secretary Henry Paulson last month. For the banking and capital markets industries, chastened by the hair-raising events of the past few months (including the Bear Stearns meltdown and fallout from subprime mortgages at institutions such as Citigroup, Countrywide, Washington Mutual and National City), the recommendations to consolidate and centralize regulatory bodies and bring oversight to previously unregulated players, such as mortgage brokers, certainly did not come as a surprise.
Large banks and their advocates cautiously acknowledged that more consistency in regulation could help reduce risks incurred by institutions and their customers. But smaller community banks were unhappy with the proposals, which they believe will unlevel the playing field and spur consolidation by eliminating the current dual banking system that allows for both federal and state regulation.
Which brings us to the insurance industry, which -- except for the bond and mortgage insurers that have been right in the middle of the subprime mess -- has been more or less on the sidelines of the credit crisis. In what was a less-prominent feature of Paulson's announcement, however, the Treasury blueprint also supports the optional federal charter concept (essentially the current bank regulation model) and a shift from the existing statutory regulatory system. This was welcomed by the life insurance industry and by many large property/casualty insurers that have advocated regulatory change. Other P&C companies, though, were less enthusiastic about an OFC, while conceding that some form of regulatory reform is in order. And, as with the community banks, independent agents tended to be downright opposed to the proposed changes.
The proposals are about safety and risk reduction. But in the long run, the strength or weakness of the blueprint, the OFC legislation that was introduced in Congress last year, and any other new or revised financial services regulation has to be viewed in the context of competitiveness -- who gains or maintains competitive advantage, and at whose expense (if anyone's) does it come? And that's where technology really moves from behind the scenes to front and center.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio