The theme for this summer (and the two summers before, for that matter) has been increased transparency on all fronts to reconcile and rebuild the pieces shattered from the financial crisis. There’s new regulation surrounding disclosure processes for mortgage originators to prevent bad loans from being written. Watchdogs have been following government programs like HAMP to ensure effectiveness in the marketplace. Even suggestions for financial reform were open for public discussion at the Future of Housing Finance Conference in mid-August and the roundtable series hosted by the Federal Deposit Insurance Corporation. But the Securities Exchange Commission today at a House of Representatives committee hearing said that it needs the confidentiality and the right to refuse document requests to function properly. The SEC was granted the power to do so under the Dodd-Frank Act enacted in July. Several bills have been filed since that seek to overwrite that power. “Section 929I enhances the commission’s ability to examine regulated entities by making clear that the commission may protect, in appropriate circumstances, information gathered in the examination process from the many entities it regulates, supervises or examines,” Mary Schapiro said in her hearing testimony. “Though the Freedom of Information Act does provide important protections for examination materials obtained from ‘financial institutions,’ courts have not yet addressed whether every entity the commission examines is a ‘financial institution’ for purposes of these FOIA protections,” she said. “In addition, these protections do not apply in non-FOIA contexts such as third-party litigation.” I’ve heard all this before. Earlier this year, I interviewed the board of trustees at Southern Methodist University here in Dallas about transparency issues. Almost every member I spoke with gave me the same answer: “We need to be transparent to each other, but we can’t tell the community what we’re doing until it’s finalized and we, as a board, have agreed on it.” They claimed to need a protected community where they could feel free to share their opinions and ideas, away from criticism of the public. Or criticism of any kind. Granted SMU is a much smaller community. The university’s board of trustess would likely argue that the problems in scope are not disproportionate in size, but then again they usually pay for the honor to serve at the student’s leisure, therefore it’s not exactly a big whoop when the board all agrees on the same thing. Not so for regulators. Flashback to February 2008: Sheila Bair, chair of the FDIC, told Squawk Box that “the bottom line is we need more transparency in the secondary market.” Two and a half years into regulation and we can still agree to disagree. Write to Christine Ricciardi.
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