Experts: Strong regulators needed

LINCOLN — The accounting profession, stung by criticism of its role in last year’s financial meltdown, wrote new standards intended to prevent future problems.

But some financial companies are already trying to “engineer around” those new standards, the head accountant of the nation’s top securities regulator said Friday.

“Amazing,” James Kroeker, a University of Nebraska-Lincoln alumnus and chief accountant for the U.S. Securities and Exchange Commission, said to about 60 people attending a financial analysis and policy conference sponsored by the university’s College of Business Administration.

If efforts to negate the tougher accounting standards result in unsafe business practices, Kroeker said, his office will turn over such matters to the SEC’s enforcement division.

“The whole purpose was to strengthen the standards,” he said.

While most of the mainstream financial firms don’t seem to be trying to find ways around the new rules, the few that have are trying to gain a competitive advantage. And if those firms succeed, then other companies will feel pressured to take the same kind of action, and the new standards could become meaningless, he said.

Presenters at the conference painted a generally bleak picture of whether the financial system, which nearly collapsed last year, is becoming safer or whether the same thing could happen again.

Lynn Turner said he expects only “mediocre” regulations, at best, from Congress, with little effect on the financial misconduct that led to the financial breakdown and ensuing recession. Turner also is a UNL alumnus, a former chief accountant for the SEC and now an adviser with the LECG consulting firm.

Federal regulators are beholden to the industries they are supposed to control, Turner said, and politicians get so many contributions from Wall Street and the banking industry that they won’t give regulatory agencies adequate funds to do their jobs.

Turner, now of San Francisco, said Alan Greenspan, who was Federal Reserve chairman at the time, once asked him, “What’s the matter if the banks are allowed to fudge their numbers a little bit?”

But Turner said he doesn’t believe people will cheat “just a little bit.”

He said a former director of Merrill Lynch Corp., the brokerage that collapsed and was bought by Bank of America, told him, “I can’t think of one thing I would have done differently.”

That statement indicates a lack of accountability among the people supposedly responsible for properly conducting their businesses, he said.

Robert Johnson, senior managing director of the Certified Financial Analysts Institute in Washington, D.C., said poor ethics, improper financial incentives and incompetence contributed to the financial collapse.

“We need strong regulations,” he said. “And we need to fund strong regulators.”

The SEC is “chronically under-funded,” he said, and the pay difference between regulators and financial executives creates a competence gap.

Johnson said the financial system needs:

Ÿ A new regulator to control large companies whose failures would pose a risk to the financial system;

Ÿ Stronger standards for capital and financial market conduct;

Ÿ Consolidated federal regulators;

Ÿ A study of the federal government’s role in overseeing the insurance industry.

Perhaps the most difficult requirement, he said, is finding the political will to regulate the nation’s financial system.

Contact the writer:

444-1080, steve.jordon@owh.com