by Deepak Gupta
Last week, Elizabeth Warren went into the lion's den, giving a dinner speech in Washington to the Financial Services Roundtable -- the banking industry's lobbying group. According to one account, she gave a "tough speech to bankers, comparing them to 'snakes' and their lending practices to 'garbage.'"
Or at least that's how the speech was characterized by certain news outlets. But if you go beyond the headlines and actually read the text of the speech, what you'll find is that Warren outlined a pragmatic, principles-based approach to regulation that contrasts sharply with a heavy-handed regime focused on technical disclosure requirements. Drawing inspiration from the SEC's first chairman, banker Joe Kennedy (pictured), Warren explained how smart regulation can create opportunities for good business to thrive. The heart of her speech focused on a proposal put forward by the Financial Services Roundtable itself:
Regulation can take two obvious forms: Regulators can make more pronouncements from on high, identifying suspicious practices in the various markets and banning them. Or regulators can layer on more disclosure requirements. But neither restores customer trust. In one case, it becomes the job of the agency to highlight industry shortcomings and pile on more and more “thou shalt not” rules, and, in the other case, consumers are hit with even more paperwork— and a growing suspicion that the game is rigged against them. . . .
But I’m here tonight to talk about an alternative recommended by the Financial Services Roundtable three and a half years ago: a principles‐based approach.
Instead of creating a regulatory thicket of “thou shalt nots,” and instead of using ever more complex disclosures that drive up costs for lenders and provide little help for consumers, let’s measure our success with simple questions. Your first principle is “Fair treatment for consumers.” I’ll paraphrase your explanation of how to tell if that principle has been met: Can customers understand the product, figure out the costs and risks, and compare products in the marketplace? Regulators should be aiming toward the goals you laid out.
Instead of layering on regulations that don’t fully protect consumers, a better approach would focus on how to give consumers the power to make the right choices for their families—and, at the same time, to ease the regulatory burden for the lenders. Best of all, if we do this right, perhaps together we can reassure families that the people in this room have met their own goal of fair treatment and that they should be treated as trusted friends.
More on Warren's vision for the new agency, below the jump.