Tags: Mayo | Transparency | Banking | Reform

Mike Mayo: Transparency Crucial for Banking Reform

Tuesday, 08 Nov 2011 08:17 AM

Regulations slapped on the U.S. banking sector are understandable, especially in wake of the recent financial crisis, but regulations alone won't solve the sector's woes without transparency, says banking analyst Mike Mayo, managing director at Credit Agricole Securities.

Mayo, who made eyebrow-raising "sell" calls in the past on banks when the opposite was in vogue, says regulations are often hind-sighted and deal with past events, while also preventing innovation from developing in the credit and other financial sectors.

"We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that's not capitalism," Mayo writes in his new book "Exile on Wall Street," as reported by the Wall Street Journal.

"The more effective solution would come from letting market forces work. That doesn't mean no rules at all — a banking system like the Wild West, with blood on the floor and consumers being routinely swindled. We need a cultural, perhaps generational, change that compels companies to better apply accounting rules based on economic substance versus surface presentation."

That, Mayo argues, comes from more transparency.

"What we need is a better version of capitalism. That version starts with accounting: Let banks operate with a lot of latitude, but make sure outsiders can see the numbers (the real numbers). It also includes bankruptcy: Let those who stand to gain from the risks they take — lenders, borrowers and bank executives — also remain accountable for mistakes."

As the presidential elections near, attacks on Democratic-authored financial regulations, the Dodd-Frank law, are picking up.

Dodd-Frank aims to curb abusive lending practices, stop high-risk bets on complex derivative securities and protect consumers from financial fraud, among other goals.

Many of the bill's provisions haven't gone into effect, which is giving Republicans new material to point out how President Barack Obama's efforts to increase regulation will continue to hamper economic recovery.

"It created such uncertainty that the bankers, instead of making loans, pulled back," Republican presidential hopeful Mitt Romney, speaking at a South Carolina rally last Labor Day where he again called for the law’s repeal, according to the New York Times.

Proponents of Dodd-Frank, however, are using the recent collapse of futures brokerage MF Global to make the case to keep regulations coming, although many admit the law might not have halted MF Global's demise.

"We are probably in a period of maximum pain in the rulemaking process where there isn't enough clarity on the final end state of some of the rules, although quite a few have been proposed," says Mary Miller, the Treasury's assistant secretary for financial markets, according to Reuters.

Regulators are rushing to meet rulemaking targets amid tight deadlines.

"If I were writing the Dodd-Frank law again, I wouldn't have put in some of the simultaneous deadlines on a number of regulations," Miller adds.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
StreetTalk
Regulations slapped on the U.S. banking sector are understandable, especially in wake of the recent financial crisis, but regulations alone won't solve the sector's woes without transparency, says banking analyst Mike Mayo, managing director at Credit Agricole...
Mayo,Transparency,Banking,Reform
488
2011-17-08
Tuesday, 08 Nov 2011 08:17 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved