As chairman of the U.S. Securities and Exchange Commission from 2009 through 2012, Mary Schapiro had a lot of the responsibility for ensuring the financial markets were fair for everyone. But she thinks consumers need to take some responsibility as well.
“Many Americans don’t understand basic concepts,” Schapiro said Tuesday at a World Affairs Council of Jacksonville luncheon.
“My personal view is we should make financial literacy a requirement for graduation from high school,” she said.
Schapiro covered a wide range of financial regulatory topics during her talk held in EverBank Stadium’s Terrace Suite, including enforcement action. Her tenure as head of the SEC came as the U.S. was trying to recover from the 2007-08 financial crisis, and many Americans wanted to punish financiers who were responsible.
“I understand the frustration Americans share at the lack of criminal prosecutions,” she said, but the SEC doesn’t have the authority to bring criminal actions against individuals.
Schapiro said the SEC’s enforcement division does look to “name individuals” in every investigation, but it doesn’t always succeed.
“It’s difficult to find evidence, particularly on an individual at the top,” she said. “There is no lack of desire by the enforcement staff to bring cases against individuals when it’s appropriate.”
The SEC did impose $11 billion in fines against companies during her tenure, which included $6 billion that was returned to individual investors, she said.
“The goal of the agency is always to try to return money to harmed investors,” she said.
Some people may blame “innovative” financial instruments like credit default swaps for causing the financial crisis, but Schapiro said the SEC shouldn’t try to stifle innovation.
“The balance has to be laid on a foundation of transparency,” she said. “Innovation should not suffer.”
She also said the SEC doesn’t necessarily need to crack down on “high-frequency trading.” She did recall the day in 2010 when computer-driven trading suddenly sent the Dow Jones industrial average down by nearly 1,000 points in just a few minutes, before it recovered just as quickly.
“It clearly had a huge impact on investor confidence,” Schapiro said.
However, an SEC study of high-frequency trading did not definitively show if it’s a negative force in the financial markets.
“That’s not exactly clear in the data,” Schapiro said. “At the end of the day, I would say the jury is still out.”
Financial regulation was impacted during Schapiro’s tenure by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The law has critics on both sides, with some arguing it doesn’t do enough to regulate financial institutions and others saying it put onerous new regulations on them.
“Dodd-Frank’s not perfect. There’s rarely a law written that is perfect,” Schapiro said.
“I think there’s more good in it than not,” she said.
As one example, she said hedge funds were largely unregulated and were a “blind spot” for the SEC before the bill.
“Under Dodd-Frank, hedge funds are now registered with the agency,” she said.
Another example is the stress tests that regulators now place on major financial institutions to check on their soundness. Since leaving the SEC, Schapiro joined the board of directors of General Electric Co. and saw firsthand how regulators handled its GE Capital finance unit.
“The stress test was incredibly rigorous,” she said.
Schapiro thinks corporations are doing a better job selecting directors for their boards. Gone are the days when CEOs would pick their friends, or maybe celebrities, for seats on the board.
“Now you have to explain why you picked somebody for your board,” Schapiro said. “Lo and behold, we had a decline in big-name board members.”
However, Schapiro, the first woman to serve as SEC chairman, said she is frustrated that only 19 percent of board seats on Standard & Poor’s 500 companies are held by women.
“We haven’t moved the needle that much,” she said.
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