Remarks of Chairman Timothy Massad Before the Economic Club of New York
December 6, 2016
If we were to roll back the Dodd-Frank Act, would the nature of liquidity change? I am skeptical that it would. Banks that participate today often use similar algorithmic trading strategies.
So the question is not whether there is liquidity in the markets. There is liquidity, but liquidity is very different today. And we must understand these trading dynamics and consider how well our markets are serving their traditional purposes. We need to make sure that participants, given the speed of modern markets, have implemented controls that mitigate the effects of unanticipated algorithmic behavior on the market and market liquidity as a whole.
As we approach the peaceful transfer of power, we are approaching an important choice. We can choose to refight the last war, as I mentioned at the outset—and debate or even unwind the basic framework that has clearly strengthened our derivatives markets. Or we can choose to recognize that while we should continue to make improvements to these reforms, we should focus on other challenges that require our attention.
Finally, we must remember that making sure our financial markets work well does not mean we have made sure our economy delivers opportunity for all. The United States has the strongest financial markets in the world, and these have helped to create our strong economy, of course. But the bigger, broader challenges facing our economy, particularly as a result of structural shifts due to decades of globalization and automation, will not be addressed by the debate over how to regulate financial markets. Those who supported President-elect Trump because of his promises to working class voters, many of whom may believe the government has been captured by powerful interests, will have been sold a bill of goods if wholesale repeal of Dodd-Frank is made out to be a critical part of the solution to concerns about economic stagnation or lack of opportunity. By the same token, we cannot claim that Dodd-Frank has solved those voters’ economic struggles.