This post is by SmartBrief Finance Editor Sean McMahon, who is reporting live from the annual meeting for the Securities Industry and Financial Markets Association today in New York. For more coverage of the meeting, follow @SBFinance on Twitter and sign up for SIFMA SmartBrief.
The most important aspect of the Dodd-Frank Act is that it provides much-needed clarity on the rules of the game on Wall Street, said Morgan Stanley President and CEO James P. Gorman. “We now have the sandbox dimensions,” Gorman said.
Dodd-Frank does not solve the issues that caused the financial crisis, Gorman said — but that wasn’t the aim. “[Dodd-Frank] was intended to make sense of the alphabet soup of regulators.” Gorman believes the most important elements of Dodd-Frank are that it creates a systemic risk regulator and addresses the need for a resolution authority.
Gorman said the lesson of the financial crisis is that “leverage is a killer.” Labeling himself a hawk when it comes to the issue of “too big to fail,” Gorman explained that institutions should be allowed to fail. The value of a resolution authority is that should an institution fail, its counterparties won’t fear that their funds will be trapped within the failing entity.
Gorman went on to explain that the industry must do more to help consumers understand the value of Dodd-Frank so that it can be a stepping stone toward restoring confidence in the markets. “We’ve clearly lost the battle for the consumer’s ear,” Gorman said, adding that Wall Street needs educate consumers on why capital is the key to capitalism.