Financial system reform debates are about to take place in earnest. For some, these may involve standard oppositions between those with more confidence in markets compared to those with more confidence in regulation. But superior policy may result from substantive analysis of issues that transcend such philosophical, political or ideological dispositions.
Two of the more important proposals may appear to be competitors reflecting polar dispositions. One, championed by outgoing Treasury Secretary, Henry Paulson, imagines a consolidated oversight structure with considerable latitude to promote US capital market competiveness. Another, championed by incoming Obama advisor, Paul Volcker, former Federal Reserve Chair, likewise outlines a consolidated structure, but with far more stringent controls intended to limit the size and risks of US financial institutions.
Despite the evident philosophical and perhaps political opposition that the Paulson and Volcker proposals may reflect, astute participants in policy debate will recognize both as essentially opening positions in the forthcoming public policy negotiations. For them, needed is balance between spontaneous market coordination and planned regulatory moderation. The exact balance may differ across different kinds of markets and constituents. In general, the following clusters of topics will be implicated.