Mr. Tafara observed that there are four key characteristics of the modern financial market:
- its global nature and the resulting mobility of capital;
- the significantly increased competition among financial service providers;
- the elimination of differences between historically separate financial products, sectors, and actors; and
- the development of a large and relatively liquid unregulated institutional financial market paralleling the regulated markets.
- [T]he new regulatory framework must address the issue of increased systemic risk, while not suppressing risk-taking per se.
. . .
As a corollary, we need a regulatory framework that provides prudential regulation for those financial intermediaries that are too big too fail.
- Second, we need the regulatory framework to address the misaligned incentives that lead to taking excessive risk.
- Third, we need a regulatory framework with better disclosure, so that lenders can better determine counterparty risk.
- Fourth, the regulatory framework needs to account for the fungibility of financial products, actors and markets.
- Fifth, the regulatory framework of the future must be responsive to the fact that capital is mobile, markets are interconnected, and technology makes the movement of capital irrepressible.
- Finally, we need a regulatory framework that is ruthless in pursuing the protection of investors.
The full text of Mr. Tafara's February 28, 2009 remarks is available at: http://www.sec.gov/news/speech/2009/spch022309et.htm
Video of Mr. Tafara's remarks is available at: https://cesr.phileog.com/node/13