Former Treasury Secretary Henry Paulson told the Financial Crisis Inquiry Commission today, a Congressional panel charged with holding a hearing on the system of bank-like institutions and markets that operate outside the U.S. regulatory structure, that the current financial regulatory process is “archaic and outmoded”.
“Our regulatory framework was built at a different time for a different system, and it has not kept pace with the rapid changes in the financial industry”, Paulson said in his prepared remarks before the congressionally-appointed panel tasked with examining the causes of the financial crisis.
“[We] cannot move forward without fortifying the weak parts of its infrastructure”, Paulson, a former chief executive officer of Goldman Sachs (GS) said. “But in addressing these problems, we must make sure we retain the benefits of the underlying financial innovations. In our haste to deal with the flaws in the non-bank financial system, we should not move ourselves back to a system of consolidated, monolithic commercial banks”.
Paulson also said he favors reforming the way derivatives contracts are traded.
“Standardized derivatives should be traded on a public exchange, and non-standardized contracts should be centrally cleared and should be subject to more regulatory scrutiny, transparency, and greater capital charges,” the former Treasury Secretary said. “Such regulations will encourage standardization, promote transparency, and penalize excessive complexity with capital charges, thereby restoring these products to their proper function–mitigating, not enhancing, risk.”
Read Paulson’s full remarks below: