No more investment banks, so no more need for a regulation to oversee them, not that it was ever effective anyway. The
Securities and Exchange Commission said
Friday that it has ended the Consolidated Supervised Entities program,
a voluntary arrangement started in 2004 as a way for investment banks,
which lack a supervisor under law, to open themselves up to regulation.
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Under the CSE program, the five big investment banks -- Goldman Sachs
Group Inc., Merrill Lynch & Co., and Morgan Stanley, and now
defunct Lehman Brothers Holding Inc., and Bear Stearns -- volunteered
to be monitored for capital and liquidity levels.
In March, Bear
Stearns collapsed and was taken over by J.P. Morgan Chase & Co.,
and Lehman filed Sept. 15 for bankruptcy protection. The surviving
banks are taking refuge from the financial crisis under the Federal Reserve's
system. Merrill is being taken over by Bank of America Corp., which is
regulated by the Fed, and Goldman Sachs and Morgan Stanley have
converted themselves into bank holding companies and are now also
regulated by the Fed.
The move also comes after the inspector general of the SEC said the agency had missed a series of red flags
surrounding the Bear Stearns debacle.
"The last six months have made
it abundantly clear that voluntary regulation does not work," SEC
Chairman Christopher Cox said in a statement.
Cox added that
because investment bank holding companies could withdraw from voluntary
supervision at their discretion, it "diminished the perceived mandate of
the CSE program, and weakened its effectiveness." He called the program
"flawed" and said information received under a memorandum of
understanding between the SEC and Federal Reserve focuses its ability
to regulate the broker-dealer subsidiaries of the banking conglomerates
and will "strengthen our ability to protect the consumers of the
broker-dealers and the integrity of the broker-dealer firms."
Meanwhile,
the SEC chairman said lessons should be learned from the CSE experience
and Congress should ensure there are no similar major gaps in the
regulatory framework.
"Unfortunately, as I reported to Congress this week, a massive hole
remains: the approximately $60 trillion credit default swap (CDS)
market, which is regulated by no agency of government. Neither the SEC
nor any regulator has authority even to require minimum disclosure. I
urge Congress to take swift action to address this," he said. - Donna Block
Comments
This 2004 rule is a HUGE factor behind the demise of the 5 investment banks that chose to calculate their capital under it. This is the first real press i have seen on this 2004 Alternative Net Capital rule. Finally!
By the way, if you actually read the rule, guess what securities were enabled under this rule to be allowed to be counted in an IBanks net capital. I quote from the rule, found in full here:
http://www.sec.gov/rules/final/34-49830.htm
"We are amending the definition of tentative net capital to include securities for which there is no ready market".
As of today, the United states government is working on a plan to buy $700BN of exactly these types of securities.