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Former SEC Chairs
Testify on Lessons Learned
March 29, 2009. Two
former SEC Chairmen testified at a Senate Banking Committee hearing on
the steps needed to respond to the financial crisis. Their comments
generally favor greater transparency in financial reporting and reforms
in the area of corporate governance to make boards of directors more
accountable and better protect investors.
Former SEC Chair Arthur Levitt urges Congress to put investor confidence
at the heart of its reform efforts.
Speaking at a hearing by the Senate Banking Committee, former SEC Chair
Arthur Levitt told the committee that no system of regulation nor any
amount of amount of funding on regulatory agencies can be expected to
succeed, if Congress does not place investor confidence at the heart of
its reform efforts. The steps suggested by Levitt:
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Drop the idea of a
"super-regulator" of banks in favor of a healthy tension between
regulators. There are potential conflicts between banking
supervisors such as the Federal Reserve Bank whose first concern is
with the safety of the banking system, and securities regulators who
are the investors' advocates. For example, bank regulators might
want to keep information about poorly performing assets from the
public to give banks time to dispose of these assets. To better
manage such potential conflicts, Congress should give securities
regulators the authority to oversee all securities transactions
engaged in by banks, (including the securitization and selling of
loans and/or the creation of derivatives backed by equities or
debt).
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Don't suspend mark-to-market
accounting. Mark-to-market can help investors understand the
risk profiles of individual banks, and it has important value for
internal risk management within a firm.
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Take a broad approach to
mitigating systemic risk. This approach should cover any
remaining pockets of financial activity that are covered by
self-regulation and protected from litigation. Most notably, the SEC
should be charged with oversight of credit rating agencies, the
municipal bond market, which consists of state and local government
securities, and the "shadow markets," which consist of the hedge
fund industry and other areas of finance that are beyond the
oversight of regulators.
March 29, 2009.
Former SEC Chair
Richard Breeden suggests specific reforms to improve investor
protection. The steps suggested by Breeden include the following:
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Merge the SEC, CFTC
and PCAOB into a single agency with responsibility for
overseeing trading in securities, futures, commodities, and hybrid
instruments. This new combined agency should set disclosure
standards for issuers and related accounting ad auditing standards,
and it should have the authority to enforce applicable legal
standards as the SEC has historically done. Another new agency might
be created by combining the Federal Reserve Board, the Treasury and
the FDIC.
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Reverse or suspend
the SEC decision to move toward IFRS. The recent $7 trillion in
investor losses is the greatest in history, and this is not the time
to force companies to undergo an expensive transition to a new set
of accounting standards that are generally less transparent than
existing US standards.
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Allow certain large
shareholders to nominate directors for inclusion on a company's
proxy statement. Entrenched boards of directors may have contributed
to the financial crisis by thinking more about their own tenure than
the interests of the investors they are supposed to protect.
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Other steps:
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Allow shareholders
more power to put nonbinding resolutions on any topic related to a
company's business on the company's annual proxy statement.
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Prohibit golden
parachute payments to CEOs and other senior officials of public
companies.
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Split the roles of
chairman of the board and CEO in any company that receives taxpayer
funds or operates under federal financial regulation.
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Eliminate broker votes
for directors, unless the vote is at the specific request of a
client.
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Establish a systemic
bankruptcy court.
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Establish limitations
of leverage in purchases of securities and derivative instruments.
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Establish a permanent
insurance program or liquidity facility for money market funds.
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Establish strict
liability for rating agencies that award AAA or comparable ratings
for a security of a non-sovereign issuer that defaults within three
years of issuance.
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Revise the rules for
deductibility of mortgage interest to provide for deductibility of
mortgage principal payments with appropriate overall limits.
Copyright ©
2009 Center for Financial
and Accounting Literacy |
Links
Levitt's Testimony
Breeden's Testimony
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