More bank regulation a certainty

By Jonathan Stempel - Analysis

NEW YORK (Reuters) - If markets are to regain a semblance of sanity, financial sector regulation must be tightened or overhauled to ensure that excesses that led to the global market crisis are not repeated soon, or ever.

At the Reuters Global Finance Summit this week, experts said keys to restoring market confidence are to make investments and their accounting methods less secretive, to ensure capital levels are sufficient, and to reduce risk.

"One of the greatest flaws in the system was really understanding what was going on," said Gary Parr, deputy chairman of the investment bank Lazard Ltd. "There's going to be more regulation and transparency. That will be one of the major events of the next year, if not two years."

Years of lax or eased oversight may be coming to an end.

The reasoning? No longer should a Lehman Brothers Holdings Inc carry a bloated balance sheet; or a Washington Mutual Inc stuff $176 billion (118 billion pounds) of home equity, adjustable-rate and subprime loans on its books; or a Merrill Lynch take on massive exposure to collateralized debt obligations that no one understood.

Many experts believe Democrats, fortified by the election of Barack Obama as president and gains in Congress, will make a serious effort in 2009 to overhaul the regulatory landscape, perhaps even merging the government's oversight agencies.

"I think it is on top of their agenda," said Robert Kapito, president of asset manager BlackRock. "We need major process changes, major infrastructure changes, major regulatory changes. There's no question about that."

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