US financial reforms 'do not go far enough'

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The Independent Online

Christopher Cox, the former chairman of the US Securities and Exchange Commission, who ran the Wall Street regulator as the credit bubble inflated and then burst, told the Financial Crisis Inquiry Commission in Washington yesterday that the package of financial reforms currently under debate does not go far enough to bring the so-called "shadow banking system" under regulatory control. The shadow banking system is the name given to the global credit markets, which are the ultimate source of funds for the majority of corporate and consumers loans and which has pushed out traditional bank lending that is more tightly regulated.

By the end of 2008, 84 per cent of all credit in the US was provided via capital markets instruments, with only 16 per cent provided via bank loans, Mr Cox said in his written testimony to the FCIC. "Addressing the lack of regulation and transparency was urgent two years ago, and it remains so today."

He urged regulators to seize what powers they do have to impose higher requirements to cut financial firms' risks, saying: "The failure and near-failure of so many regulated commercial banks as well as non-banks since mid-2008, and the extravagant taxpayer cost of bailing them out, highlights the pre-crisis inadequacy of capital and liquidity in both categories of institutions."

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