The U.S. Treasury has drafted a helpful guide to reforming at least part of Wall Street. Although the report commissioned by President Donald Trump on the nation’s capital markets overplays the drop in the number of initial public offerings and fixates on a few needless changes, many of the recommendations make a fair degree of sense.
That comes as something of a surprise given the rhetoric espoused from the White House about how the U.S. economy is being damaged by excessive regulation. Steve Mnuchin’s Treasury tries to incorporate some of that ethos into a lamentation about the dearth of companies selling their shares to a broad range of investors. Government restrictions, however, are not a significant factor.
The near-halving of publicly traded enterprises in the United States since 1996 mostly has been caused by the increase in M&A activity and the exchanges themselves ousting more than 2,000 companies between 1997 and 2003 for failing to meet listing requirements, consultancy EY notes. And while it has become harder for smaller firms to go public, part of that is down to the decline in smaller investment banks willing to advise and write equity research about them. The rise in availability of private capital from around the world is another big reason.
Other pieces of the Treasury report are sops to Republicans. For example, repealing provisions of Dodd-Frank that force companies to disclose information on conflict minerals, mine safety, resource extraction and pay ratios probably generates more political capital than financial.
Elsewhere, however, “A Financial System That Creates Economic Opportunities: Capital Markets” tackles real issues. It even calls for more regulation by encouraging watchdogs to beef up oversight of clearing houses and other financial-markets utilities so they don’t become weak links in the system.
Another recommendation is for the Securities and Exchange Commission and the Commodity Futures Trading Commission to “harmonize” much of their work. That falls short of the optimal full-blown merger, but if the suggestions are followed it ought to cut back on unnecessary bureaucracy.
Treasury also suggests that Congress empower just one agency to take the lead on, for example, sorting out risk-retention rules for asset-backed securities rather than all six having an equal say. That, like much of the report, is hard to argue with.
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