SEC Director of the Office of International Affairs Ethiopis Tafara elaborates on his views regarding “Growth, Stability and Sustainability” in the United States’ post-recession environment. Tafara asserts that problems in the capital markets can be alleviated by restoring investor confidence in the integrity of the system. This, in Tafara’s opinion, would be accomplished through regulators focusing more on conflicts of interest and informational asymmetry problems rather than by adopting banking supervisory approaches, which he argues focuses on the limting of risk. Mr. Tafara argues that the imposition of bank-like regulation on capital markets activities is inappropriate and will damage the economy by discouraging appropriate risk-taking.
Lofchie Comment: Much of what Mr. Tafara says is appealing, and these days, I applaud any regulator who is willing to say in public that it is not necessary to impose every conceivable form of financial regulation on every conceivable financial institution. However, to wear my pro-regulatory hat (and I do have one; I just don’t get to wear it much in this regulatory climate), I think Mr. Tafara underestimates the risks of runs on broker-dealers and mutual funds. And to put my anti-regulatory hat back on, I worry that Mr. Tafara would give the regulators too much power (with a right to judge in retrospect) that a conflict of interest at a financial institution would be deemed a fraud.
Right now, the regulatory system desperately needs regulators such as Mr. Tafara who are willing to discuss which regulations are appropriate (and which are not).
View Speech in full here (links externally to SEC website).