Municipal Securities and Financial Institutions: Proposals for Reform in 2009

In response to the Financial Crisis of 2008–2009, American political leadership has determined upon a course of financial regulatory reform in 2009 that will impact municipal securities and financial institutions. However, not all potential avenues of reform will yield constructive results. This article advocates limiting and directing financial regulatory reform to those instances needed to correct what the Financial Crisis has revealed to be weak and deficient in the financial system and markets—thus using the Financial Crisis as a naturally occurring stress test. Specific avenues for reform that the author feels meet this test are then explored, including amending the federal securities laws to create a disclosure regime suited to the realities of the public finance market; providing for the federal regulation of insurance companies and banks issuing third-party financial guarantees; providing for the formal evaluation and disclosure of risks associated with complex financial instruments and products; reintroducing the Glass-Steagall model of protective separation within financial institutions to limit future systemic risk; and providing additional necessary regulation of the credit rating agencies that rate municipal securities.