Tougher financial regulations not coming fast or easy for SEC's Mary Schapiro

By Zachary A. Goldfarb
Tuesday, February 16, 2010

As Mary Schapiro took the reins of the Securities and Exchange Commission last year, she faced a torrent of complaints from lawmakers and bankers that Wall Street short sellers had driven down bank stocks during the financial crisis, contributing to the fear that gripped the nation.

As SEC chairman, Schapiro pledged to quickly pursue new limits on short selling. In April, just two months after she took the job, the agency unveiled a proposal to crack down on the practice.

But more than a year after Schapiro took office, the SEC has not yet written into the Wall Street rulebook the short-selling limits -- or most of the other measures that the agency has proposed to more tightly regulate the financial system.

Among the proposals that have not been finalized are new rules to make it easier for shareholders to shape the upper echelons of corporate management, an overhaul of the credit-rating industry that judges the quality of investments and measures to curb corruption in state pension plans. Each of those measures is aimed at failings that became apparent during the past two years.

Whether Schapiro can achieve more of her reform agenda will be a test of how much she can change the SEC, which gained a reputation as a weak Wall Street regulator in the years leading up to the financial crisis. The commission's poor performance in part led the Bush and Obama administrations to consider stripping it of key powers, but Schapiro's ambitious vision for the agency has helped the SEC retain its authority.

Schapiro defended the agency's progress.

"It can take more time than one might have thought at the outset," she said in an interview. "We have to understand the real-life implications of what we're doing, the unintended consequences. We need to digest all the comments and all the economic analysis. And that leads us down a path that sometimes isn't 100 percent predictable at the beginning."

Lynn Turner, a former senior SEC official who has served under three agency chairmen, gives Schapiro an "incomplete" grade. "But that's not a negative," he said. "It takes a while to get regulations done and it's just too early to tell how effective she'll be."

In the win column

The agency has recorded several achievements in the past year, finalizing three new policies striking at problems that have recently surfaced on Wall Street.

The agency put in place conditions that investment advisers be audited, a response to the massive Ponzi scheme run by Bernard L. Madoff. It tightened requirements on seemingly ultra-safe money-market funds after one of them, the Reserve Primary Fund, lost investors' money in fall 2008. And the SEC required public companies to tell shareholders more about how their pay practices could lead to excessive risk taking, reflecting widespread concern that banks pay employees based on the quantity, not quality, of the investments they sell.

"Before Mary's term, the average time for a proposal to be adopted was 10 1/2 months," said commissioner Elisse B. Walter, an ally. "Things here have been moving pretty swiftly."

Facing hurdles

But with many proposals, Schapiro has faced roadblocks.

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