A decade after the crisis, our vigilance must not wane

Just over 10 years ago, the Lehman Brothers bankruptcy signaled the beginning of a crisis that wreaked havoc on the global economy. 

To the millions of Americans who lost jobs, saw retirement savings vanish or found themselves underwater on mortgages, the “too big to fail” ethos had failed them. The years following September 2008 tested the American spirit with years of economic headwinds not seen since the Great Depression. 

{mosads}But thanks to timely policy decisions made during the crisis and strong, balanced reforms implemented in the years immediately following, we have progressed toward strengthening the economy and ensuring that Americans are better prepared for another financial crisis.    

As a Democratic commissioner at the Commodity Futures Trading Commission (CFTC), I constantly reflect on the regulatory shortcomings and moral hazards that contributed to the financial crisis and the Great Recession. 

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) addressed many of these shortcomings head-on, but I feel deeply that today’s strong economy, evidenced by record unemployment and increased consumer spending, must not be used to rationalize carelessly rolling back financial reform. 

The American public has persevered far too long to have its progress undercut by the knee-jerk reactions of the few who may have avoided the recession’s wrath and who fail to appreciate the risks of putting our nation back to the pre-crisis regulatory status quo.  

Since 2010, pursuant to the Dodd-Frank Act, the CFTC has diligently policed the swaps market, a key contributor to the financial crisis. These highly complex financial instruments paralyzed AIG and many other important financial institutions that were operating in a regulatory vacuum with insufficient internal safeguards to protect against the swelling credit crisis. 

The CFTC, the primary U.S. derivatives market regulator, has implemented essential reforms that have both shed light on these complex markets and compelled resurgence in compliance culture with a strong commitment to accountability and customer protection. 

Because of these reforms, the CFTC today possesses the tools necessary to root out fraudulent and manipulative practices and to identify and address systemic risk before it is too late.   

Some may observe the current strength of the financial markets and the expansiveness of the regulatory landscape —the byproducts of continuous cost and effort — and conclude that our reforms are excessive and already outdated. 

But we must remain vigilant and not limit ourselves to seeing what we expect to on the horizon. Doing so often limits us to seeing only the familiar, leaving everything else in a blind spot. In short, failure to properly take stock of the last several decades of experience will leave us ill-prepared in the years to come. 

The next crisis may already be evolving just beyond our field of view, in the outskirts of the traditional financial sector where the authority of agencies like the CFTC is limited.  

For example, as the second decade after the financial crisis dawns, developments in financial technology, or “FinTech,” urge all of us to take notice of anything with a “crypto” prefix or “coin” suffix. Most notably, in late 2017, the meteoric rise of bitcoin and other crypto-assets captured our attention and our speculative curiosity. 

These innovations may eventually capture market efficiencies, open the markets to new products and participants and richly reward dynamic entrepreneurs. But innovations, like those that supported the growth of the swaps markets leading up to the crisis, can also carry risks for the wider economy.

We must move beyond domestic political polarity and nationalistic animus to collaboratively address new and emerging risks with lessons learned from a decade of recovery.

We have been assured that financial stability is not yet implicated by the technology underlying crypto-assets and that any urgency to create new laws and regulations must be tempered by our lack of a full understanding of the promise and perils of the FinTech phenomena. 

Nevertheless, I implore my fellow regulators to temper the deregulatory urge and instead work collaboratively to utilize the lessons learned over the last decade toward identifying and crafting an appropriate path forward. 

We must remain accountable to all those whom the markets affect and ensure that the legal issues and risks presented by these and other technologies are identifiable and solvable before they cross the horizon. 

Technological advancements have certainly aided in our recovery and will continue to benefit the financial markets and American public, but we must constantly remind ourselves of the real consequences that may occur when we fail to recognize what is in front of us.

Rostin Behnam is a commissioner at the U.S. Commodity Futures Trading Commission.