Weekly Recaps

Perhaps the most surprising thing about the Supreme Court’s surprise decision abridging federal preemption in banking regulation was that conservative Justice Antonin Scalia sided with the liberal wing of the court in the 5-4 decision and wrote the majority opinion.

When the chief executive of one of the nation’s best-known insurance companies took to the opinion pages of The New York Times with what looked like an exercise in eating humble pie, he brought to the fore the fierce fight over how this country regulates the insurance industry.

Amid reports that banks are raising credit card fees and rates on consumers, legislation to provide consumers with greater protection is gaining some momentum in Congress – but perhaps not enough to make a difference.

Top officials in the UK are discussing whether regulatory reform in that country should include some sort of separation of commercial and investment banking as the United States had under the Glass-Steagall Act.

Hedge funds have often been described in the financial press as “lightly regulated,” and that is likely to continue to be the case even with all the talk of regulatory reform. Though European leaders are always looking for more regulation of hedge funds, the Group of 20 heads of state and government meeting in London this week let them off, well, lightly.

While Geithner has been the front man for the administration’s proposals, there is another official who has made her presence felt this week. Sheila Bair, chairman of the Federal Deposit Insurance Corp. has left her fingerprints all over the measures.

Compensation at financial institutions will be a key part of regulatory reform efforts. This was on the agenda even before the recent uproar about bonuses to derivatives traders at American International Group, but that controversy ensures it will have high priority.

European government leaders are likely to push for greater monitoring of systemic risk as well as for tighter restrictions on all financial institutions, including hedge funds, when the summit of the Group of 20 countries convenes on April 2.

The immediate focus in financial regulatory reform is to designate someone to watch out for systemic stability. The current crisis has revealed yawning cracks in the regulatory structure because none of the watchdog agencies felt responsible for the financial system as a whole.