Regulatory Reform: What to Expect Next - Insights from Former Regulator Christie Sciacca
Sciacca spent 13 years at the FDIC, where he led examination, supervisory and bank rescue transaction projects in Detroit, New York, and Washington DC. From 1983-1986, Sciacca was Assistant to the Chairman, representing the Chairman on interagency matters, at bank trade association meetings and on all operational and policy matters. Sciacca served as the FDIC's representative on the Vice President's Task Group on the Regulation of Financial Services. In 1996, he returned to the FDIC to establish that agency's International Branch and from 1997-2002 served as the head of all supervisory policy, including domestic and international bank supervision, capital markets and accounting policy.
TOM FIELD: Hello, this is Tom Field, Editorial Director with Information Security Media Group. We are talking today about the President's plan to overhaul the banking regulatory structure and with us is a gentleman who spent 23 years in that structure with the Federal Deposit Insurance Corporation. We are talking with Christie Sciacca, Director of LECG. Christie thanks so much for taking time to join me today.
CHRISTIE SCIACCA: Thank you. It's a pleasure.
FIELD: Gut reactions to what you have seen the President put forward?
SCIACCA: I have two or three immediate reactions. First is that I would agree that there were gaps in the regulation. There are gaps across the financial landscape, for example mortgage brokers, etc. I think that is the most obvious, and the one used by the President and what I have read recently.
My second reaction is that I am a little bit of a skeptic when it comes to having all of that power and authority vested in one organization. It is an enormous responsibility. There is a lot of information that will be needed to be gathered and collected. The agencies do work together very well, that is the five financial regulators known as the FFIAC. So I think it probably can work, but anytime there is one enormous organization with enormous power, or one organization with enormous power, there is an opportunity for things to go wrong. I am not suggesting that and I certainly I hope they won't.
The third thing is my view is that what happened over the last several years probably started as many as eight or ten years ago and wasn't a matter of deregulation; it was a matter of de-supervision. I distinguish between the two insofar as the regulations are there, even people in the Whitehouse are saying the regulations with respect to consumer protection are already there, they are just scattered about and that is part of the reason to bring them all under one common umbrella in a new agency that will be chartered.
The people around the agencies do a marvelous job, but I do think that between 2000 and 2006, their ranks were thin and there was an effort to get off the backs of the bankers if you will. There was an effort to allow commerce to move ahead without the burden of regulation, the so-called regulatory burden. I think the issue is with supervision. There may not have been enough people doing what they needed to do, understanding that mortgage brokers and derivative products weren't regulated or supervised much at all at the federal level.
FIELD: Christie, what do you see as the biggest news coming out of today's announcement?
SCIACCA: The biggest news to me is there will be a lot of debate in a sense that I know that Senator Dodd and Congressman Frank are both talking about getting it done this year. This is an enormously important issue, critically important. If the debate is fulsome and includes all the people it ought to include and people are serious about listening to the pros and cons then it is going to be tough to get done this year.
FIELD: Looking at what has been proposed here, what is the biggest potential difference in the regulatory structure based on what the President has proposed?
SCIACCA: I think the biggest difference in the proposal is divesting one entity, the Federal Reserve, the Board of Governors of the Federal Reserve System. Right now, there are several agencies and organizations that have to come together to sort through the issues and that is the SEC, FDIC, OTS, OCC, Treasury Department and the Federal Reserve. I think the big difference which becomes a concern is would the Federal Reserve in exercising this new authority simply act alone and not seek the kind of input that would be important?
FIELD: Sure. Where do you see opposition coming from now that the President's proposal is out there? I mean certainly you spend time in Washington and you know it comes from all directions.
SCIACCA: It will be people at the bank. There will be mortgage brokers; there will be people who are not regulated at the federal level now. I think people will worry about too much consumer protection and whether or not that will slow down commerce and banking and make it more difficult. So I think that is where it will start.
I don't know enough, maybe those people that have for years talked about not regulating the over-the-counter derivatives market; maybe they will raise some concerns and be vocal. Although I don't think they are going to have much of a sympathetic audience because of all the trouble that people ascribe to what happened in the derivatives market.
FIELD: Sure. Now you mentioned the congressmen wanted to get something done as quickly as this year. You certainly have spent time in D.C. and you know how long things take, what realistically should people expect to see for a timeline for regulatory reform?
SCIACCA: I think the debate will start this year in June. This session of Congress will end too soon for anything to get started or finished. I hope it gets started and I hope it gets reintroduced; whatever happens it will get reintroduced and started in the next Congress, and I think people are serious about it.
I have been around long enough to have seen at least five different proposals for restructuring regulatory agencies and none of them have happened. It is ripe right now in happening for lots of reasons, but I wouldn't think that it would get done in this session of Congress; maybe next session.
FIELD: One last question for you. You said you have seen lots of these types of proposals. Is what we see now what the regulatory system truly needs?
SCIACCA: I think it needs a full study. Certainly the answer is yes in the sense that what it needs is people to debate and study the gaps, how they arose and how to get them filled, and what is the most effective way to get them filled. That is healthy in that regard and I look forward to that debate. I think people are very serious now and it is not just political, it is people throughout the country who have been affected by this and so I think the time is now; this is the right time to have this debate.
FIELD: Very good. Christie I appreciate your time and insight today. Thank you very much.