One can expect that the next United States administration, whether John
McCain or Barack Obama, will address as a high priority the overall US
financial regulatory structure
Two specific issues that will require immediate attention are fair value and
whether to adopt international financial reporting standards.
Although all predictions are hazardous, preliminary statements by the
candidates provide some clues as to their inclinations. Obama will be studious,
listen to Paul Volcker and others and seek a way to balance investor interests
with those of business. McCain will likely seek to salvage the besieged
deregulation ideology and will be influenced by treasury secretary Hank Paulson.
Obama alone has presented a specific vision of regulatory change. In his
Cooper Union address on 27 March, Obama refers to Paulson’s blueprint and the
criticism of the current patchwork regulatory apparatus and insufficient
oversight. Supporting international cooperation and comprehensive oversight,
Obama commended the current efforts of the IASB and FASB to pursue accounting
He would likely support the current SEC, FASB, and IASB efforts to preserve
fair value accounting. In the face of frozen markets, Obama would weigh the
proper use of multiple fair valuation inputs, including expected cash flows and
use of outside pricing services. Given Paulson’s views, McCain might be
sympathetic to providing outright relief to bankers from fair value accounting.
Progress on IFRS in America is essentially held hostage by the current
financial crisis. Both candidates would likely urge the SEC to defer further
action until IFRS’s impact on the financial crisis and the economy is more
Another area where Obama and McCain may differ is the fate of the SEC under a
regulatory restructure. In his blueprint, Paulson favoured the SEC becoming part
of a large consumer protection agency in combination with the Commodity Futures
Trading Commission. Given the financial crisis and regulatory gaps that have
been revealed, many investors and commentators, including this author, will urge
a larger role for the SEC, to include oversight of swaps and other derivatives
and to have the agency be self funded like the Fed and other major regulators
across the world.
Although Obama would need to be convinced, he might be more open to an
enhanced SEC than McCain. Delivering an effective restructuring of US
regulation, without curbing innovation and productivity, that will also work
well with the global markets and international regulators, would be a valuable
legacy of the next president.
Roel Campos, former
US Securities and Exchange
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