In choosing a particular regulatory regime it is important to remember that no system will fully eliminate inappropriate or illegal activities. Banking examiners, for example, find it difficult to unearth fraud and embezzlement in their early stages. Securities regulators have difficulty ferreting out malfeasance. Even trading on exchanges does not in itself eliminate all endeavors at manipulation, as the Hunt brothers' 1979-80 fiasco in silver demonstrated. The primary source of regulatory effectiveness has always been private traders being knowledgeable of their counterparties.
Government regulation can only act as a backup.
It should be careful to create net benefits to markets. It also supports the legislation to amend the banking and insolvency laws that has been recommended by the President's Working Group on Financial Markets. This legislation would shore up the infrastructure of U.S. markets and enhance their competitiveness. The legislation recognizes that the traditional insolvency process can create serious risks to counterparties to financial transactions because of the price volatility of financial assets. To comment on this site, please fill out our feedback form.