Financial reform lacks specifics on systemic risk, expert says

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By Gerald Helguero | June 30, 2010 2:33 AM EST

With President Obama's backing, Democratic lawmakers are pushing to pass an overhaul of the rules governing the United States' financial system. But, according to a financial expert,  the problem of identifying systemic risk has not been adequately addressed in the reform bill currently being considered.

"You would have expected more specificity," Cliff Rossi, managing director of the Center for Financial Policy at the University of Maryland, said in an interview Monday.

While noting that the legislation would set up a "Systemic Risk Council" composed of the various heads of current regulatory agencies and appointees, it leaves "a lot open to the regulators."

Rossi, a former chief risk officer at Citigroup's consumer lending division, foresees "a lot more work" from regulators to address the issue if the bill passes.

Last week, Senate and House negotiators settled on the final version of the reform bill. Lawmakers have given themselves a deadline of July 4 to present the bill to President Obama, who supports it in its current form. Obama said the bill addresses 90 percent of the issues which he originally identified.

Financial reform has been a priority of the Obama administration since the President came into office. Congress has been working on the legislation for more than a year.

Rossi noted that while the current legislation will provide greater transparency, it won't pass the "litmus test" which asks if the current law would have helped to avoid the latest financial crisis.

"I don't think [the legislation] would have prevented what we saw in 2007," Rossi said.

Republican legislators have criticized the current bill for what it doesn't address, the state of the giant financial mortgage companies which would have failed were it not for a government bailout.

Fannie Mae and Freddie Mac are currently under conservatorship.

Rossi says Congress "has kicked the can down the road," regarding the issue.

"Quite honestly there are not simple answers to address GSE reform," he said, referring to the government sponsored enterprises, Fannie Mae and Freddie Mac. "None of them are entirely palatable."

He said the government and country can't continue to control 90 percent of assets in the secondary mortgage market.

"Whether they like it or not they need to address it very shortly," he says.

Rossi also held executive level positions related to credit at Washington Mutual and Countrywide Bank.

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