The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Financial Re-Regulation . . . FAQ

07/15/2010

Q. Is it over?
A. The bill has passed and will become law. However, any bill this important will require many months and years of regulatory implementation. As always, the “devil will be in the details”.

Q. Is this a disaster for banking U.S. system?
A. No, but it will require some change and increase compliance costs.

Q. Will the costs be passed along to the consumer?
A. Most of it, but probably not all.

Q. Will banks begin charging for checking accounts, etc?
A. Probably, that’s the price to the consumer for reducing the risks of “too big to fail” banks.

Q. Has the problem of “too big to fail” or taxpayer bailouts really been eliminated?
A. No, but it is unlikely any future bailouts will be paid entirely by taxpayers. The regulators will also be able to move faster.

Q. Will it preclude another financial crash?
A. Nothing can guarantee that, but this will provide better tools to deal with it, when it does happen.

Q. Are there any important lessons for bankers?
A. Yes, short term incentive plans have the potential to destroy our economy.

Q. Are you glad it passed?
A. Yes, because we can finally start reducing the uncertainty. Something had to be done soon.

Q. What do you like best about the bill?
A. It creates a new function of examining systemic risk, which has never existed. It will be interesting to see what they do.

Q. What do you like least about the bill?
A. It doesn’t deal with the problem of Fannie & Freddie. Solving that problem would have delayed the rest of the bill, which needed to get done now.

Q. Don’t you think there are already enough regulations?
A. Absolutely, we are already over-regulated but, more importantly, we are very under-punished. Convictions are too rare and way too light to be worrisome to somebody on the verge of making millions.

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