Treasury Secretary Jack Lew told investors at the Delivering Alpha Conference last week that regulators need to be flexible in order to adapt to new and emerging risks in the financial system.
“We cannot limit ourselves to fighting the last war,” Lew said at the conference, which was hosted by CNBC and Institutional Investor and attracts top industry participants. “Financial innovation has been and will remain at the core of our country’s greatness, but when it comes without regulation and oversight, this evolution can result in significant and unacceptable risks.”
Lew pointed to the Great Depression, after which the U.S. took a number of steps to strengthen the financial system, including the creation of the FDIC and the passage of the Securities Exchange Act.
“But then the rules began to fall behind progress in the markets,” Lew said. “Our financial system evolved beyond the protections that had been established. And we allowed our guard to come down. The result was a scale of damage to ordinary Americans, financial markets and the broader economy that was measured in the millions of jobs, businesses and homes lost, and trillions in wealth wiped out.”
Lew said regulators need to ask whether they “have used all the tools of Dodd-Frank as effectively as possible and whether other tools may be needed,” adding that the U.S. should push to keep its markets transparent and its institutions “safe and dependable.”
“The fact of the matter is, financial reform is not about writing a set of rules and then walking off the field,” Lew said. “It is about an enduring commitment to making our financial system a model of stability and to keep it that way.”