(March 7, 2005; Washington D.C.) – Terrorism insurance, Social Security and the trade deficit were among the issues addressed at the second annual Regulatory Reform Summit held in Washington, D.C., March 3. Legislators, policymakers, financial services and industry leadership convened to address financial services issues ranging from the future of the Terrorism Insurance Act (TRIA) to Social Security and the U.S. trade deficit.
Speakers at the event included CNN anchor Lou Dobbs, Acting Assistant Secretary for Financial Institutions Greg Zerzan, Rep. Barney Frank (D-MA), Rep. Richard Baker (R-LA) and representatives of Sen. Chuck Hagel’s (R-NE) staff.
Hosted by Indianapolis-based Networks Financial Institute, an outreach of Indiana State University, the event drew over 100 attendees, and examined the financial services issues that will be garnering the attention of the 109th Congress. Networks Financial Institute Executive Director Liz Georgakopoulos stated, “Congress is addressing a breadth of issues; some long-standing such as the role of state versus federal regulation, but also new unprecedented issues such as the tremendous financial risk to the country’s insurance sector associated with terrorism insurance.” As a non-partisan entity, Networks Financial Institute sponsors the forum to provide a free-exchange of dialogue regarding what are often very partisan approaches to financial services.
Politics, corporate accountability and the trade deficit
CNN anchor Lou Dobbs spoke first at the Summit, discussing how the nation’s partisan politics are creating “collateral damage” for the financial services industry. Dobb’s called on attendees to demand honesty and accountability from policymakers as the nation addresses a critical budget deficit, sluggish gains in job growth and productivity that may not be large enough to support sustained economic growth.
Dobbs also addressed the corporate scandals of recent years while applauding the creation of the Sarbanes-Oxley Act. “Anybody who wants to roll back Sarbanes-Oxley, I’m going to get you,” Dobbs stated after criticizing the US Chamber of Commerce, and Business Round Table’s efforts to amend Sarbanes-Oxley.
On another corporate note, Dobbs questioned whether the U.S. is truly transitioning from a manufacturing economy to a service economy. He cited a claim that the service economy surplus has dwindled to $45 million and faulted policymakers and the “academic orthodoxy” for assuring the workforce that lost manufacturing jobs will be replaced with technology and service-sector opportunities. In creating a well-equipped workforce, Dobbs believes the nation must make significant improvements in the US K-12 education system and criticized the Bush administration for cutting funding to higher education.
Bearing the cost of terrorism insurance Greg Zerzan, Acting Assistant Secretary for Financial Institutions and Deputy Assistant Secretary for Financial Institutions Policy addressed Summit attendees regarding the Terrorism Risk Insurance Act (TRIA) being considered for Congressional re-extension. Zerzan reported that the federal government’s first pass at TRIA, a temporary public program that placed the federal government in the terrorism reinsurance slot for both insurance and litigation management has largely been successful. He noted that the Treasury is conducting a study to assess the program and seek advice on legislative changes. The Treasury will report results to Congress by June 30, 2005. As TRIA is set to expire, the insurance industry faces several implications as states balance the interests of self-regulation with the risks of federal threats.
The role of State/Federal insurance legislation Rep. Richard Baker (R-LA), member of the House Committee on Financial Services and Chair of the Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee is sponsoring the State Modernization and Regulatory Transparency (SMART) Act. Expected to be addressed in late summer or fall, the SMART Act has implications for insurance competition between states as well as the role of the federal government in what has largely been a state-regulated industry. Rep. Baker argued that the SMART Act enhances free market function while stopping short of a true federal charter governing federal regulation. He framed SMART as a necessary step before consideration of a more significant federal role.
Regulation in a free market economy Rep. Barney Frank (D-MA), ranking minority member of the House Financial Services Committee focused his comments on regulatory reform and the role of regulation in cultivating and maintaining a capitalist economy. Rep. Frank warned that gains in productivity are not being reflected in improved compensation for the workforce. He expressed concerns about sluggish job growth and increasing benefit costs impacting U.S. workers. He sounded an alarm that the gap between skilled and unskilled workers continues to widen and that opportunities for unskilled workers to move up in the workforce are limited. Rep. Frank advocated a regulatory environment that would appropriate more of the nation’s earnings going toward funding solutions for unemployment extensions and access to healthcare.
Rep. Frank noted that regulation may become even more necessary in the financial services industry. He noted banking technology that has enhanced operational efficiencies for debiting customer accounts, but noted the financial benefits should not be enjoyed in isolation, but should be accompanied by equally timely crediting to customer accounts. Rep. Frank said that unless the banking industry takes on the equality of this issue, regulators may be required to intervene.
Regarding the role of state versus federal regulation, Rep. Frank stated that he could support the greater efficiency of federal regulations if supporters could prove that federal regulations achieved at least 85% of the state-granted consumer protections. To date, he said, the instinct to nationalize has not been about efficiency but about the wiping out of state restrictions.
Social Security reform legislation Senior staff of Senator Chuck Hagel (R-NE) addressed attendees’ questions regarding Social Security reform. Chief of Staff LouAnn Linehan advised that Sen. Hagel would be introducing reform legislation as early as March 7 at an engagement at the University of Nebraska. She shared with attendees that Senator Hagel strongly supports personal Social Security accounts and believes that the long-term problems associated with both Medicare and Medicaid need timely solutions. Sen. Hagel did not support last year’s Medicare reform bill. He supports prescription assistance only for the needy.
Responding to a need for financial literacy Liz Georgakopoulos, executive director of Networks Financial Institute said that while much of the Regulatory Reform Summit discussion focused on specific issues, the dialogue also served to underscore the role of financial literacy. “Each of the issues discussed during the Summit including the trade deficit, job creation and financial reporting is linked to financial literacy. Networks Financial Institute advocates fostering sound personal financial management skills starting very early in life,” Georgakopoulos stated. Networks Financial Institute was created through the efforts of Indiana State University’s College of Business in 2003, with financial support through the Lilly Endowment.
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