As Congress passes, and President Obama signs, a landmark deal on legislation to reform Wall Street to prevent another financial crisis like the one we faced nearly two years ago, there is little doubt that this is an important and overdue measure that will help to safeguard the long-term stability of our economy.
As a senior member of the Banking Committee, and as a member of the conference committee on the Dodd-Frank Wall Street Reform and Consumer Protection Act, I worked hard to craft workable legislation with my colleagues to create a mechanism to monitor systemic risk in the financial sector; to unwind large financial firms without having to bail them out; to regulate risky derivatives, credit-default swaps and other complicated products that were not transparent and unregulated; and to provide consumers with better protections governing the products they use and better information about those products by creating a consumer watchdog, all with an eye toward ensuring continued economic growth and a competitive U.S. financial industry.
While this is a historic moment, and we have passed strong legislation that remakes the financial services landscape in our country, this is in many ways only the beginning of our efforts and not the end.
First, Congress must closely monitor the implementation of this legislation. It will take strong oversight and communication between Congress, the regulators and the administration to create the best outcome for this bill. There are many complex pieces to this comprehensive legislation, including studies to be conducted and new agencies and responsibilities to be created. While strong protections were included in this bill, we must also be on watch to ensure that consumers, small businesses and community banks are not negatively affected.
In addition, the legislation gives a great deal of authority to the regulators to write new rules in a variety of areas, from derivatives regulation to capital requirements. During the coming months, the regulators will undertake this task, and it will be critically important to hear from all the financial regulators as they start the implementation process.
As the regulators begin writing these rules, it is in our best interest to also open a dialogue with our international counterparts. Coordinating our efforts with other countries' efforts regarding financial reform will create a better outcome and strengthen our efforts on financial reform, international accounting standards, capital requirements and other issues especially as we head toward the next G-20 meeting in Seoul in November. As we know, the European Union has already moved ahead on insurance and deposit insurance directives, hedge fund and private-equity regulation, and taken steps to restructure the EU's financial services regulatory bodies. In coming months, additional proposals, including resolution authority, are expected to make their way through the EU and its member countries as well.
As we have all seen since the crisis began nearly two years ago, problems in the financial markets are not isolated within national borders. There must be coordination in this global marketplace.
When we look at the various causes of the crisis — gaps in regulation; rules that applied to some financial companies but not all; the lack of a system to monitor risks across the banking sector; the lack of a system to unwind big financial firms; and large corporations operating with little or no accountability to their shareholders and their customers — it is clear these were not all inadequacies unique to the U.S. Many financial services companies operate globally, and in order for our reforms to work, we will need to coordinate with other countries.
This doesn't mean that all the rules need to be identical, but that they should achieve the same goals without creating loopholes that incentivize regulatory arbitrage across borders and put the U.S. at a competitive disadvantage.
Our legislation strikes an appropriate balance by better protecting consumers, giving regulators tools they need to do their jobs, and providing certainty to businesses. The kind of freewheeling, self-regulating, anything-goes environment that we had before the crisis is simply not an option, and shouldn't be an option in other countries. The more coordinated the efforts, the better.
Sen. Tim Johnson is a Democrat representing South Dakota.