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Banking

Lockhart: Wise Regulation Is the "Holy Grail"

photo of Atlanta Fed CEO Lockhart In concluding the Federal Reserve Bank of Atlanta's 2012 Financial Markets Conference, Atlanta Fed President Dennis Lockhart said one of the overarching themes of the event was the importance of paying attention to the details in formulating future regulatory policy.

Avoiding precipitous action important
"We should continue to try to avoid the 'ready-fire-aim' syndrome, proceed expeditiously, but very thoughtfully, accept that it is going to take time to design and put in place a better scheme, and accept that that scheme is likely to be imperfect," Lockhart said in summarizing the Atlanta's Fed's major annual policy and research conference. "I hope this conference has contributed in some small way to finding a way forward with this enormous challenge."

Lockhart noted that in his view the financial policymaker's "holy grail" is wise regulation. Reaching that ultimate aim requires a delicate balance between two primary concerns. One is the danger of principle-based reforms and regulations that lead to simple rules will likely be interpreted in various ways and applied inconsistently. On the other hand, detailed rules, Lockhart said, will probably lag market reality, add dysfunctional complexity, encourage gaming of the system, and generate unintended consequences.

Not easy, but essential
"So that's the inherent tension in this regulatory reform—between simplicity and principle-based reform or principle-based regulation, and the complexity of details," Lockhart said. "No one said that this was going to be easy, but also no one is arguing that it isn't necessary, or practically no one."

The conference was titled "The Devil's in the Details." Lockhart called the event "a kind of checking in" on a regulatory reform process that began two years ago. Following the title of the conference, he noted that the presenters and attendees examined details of certain aspects of financial reform.

April 25, 2012