Levitt says Madoff should be reform "prod"

(Reuters) - The Bernard Madoff scandal should be the "final prod" for a fundamental reform of the financial regulatory structure, not a "spur to haphazard regulatory responses," former U.S. Securities and Exchange Commission Chairman Arthur Levitt wrote in the Wall Street Journal.

"The regulatory structure that has been in place for the past eight decades to keep our markets free and fair may no longer be appropriate," Levitt wrote.

Levitt said risk assessment must be central to the SEC's efforts, adding that the agency needs an office that will collect information from all of its divisions and propose inspection and examination priorities.

"It should identify problems such as excessive leverage and risks posed by new structured financial products," wrote Levitt, who was SEC chairman from 1993 to 2001.

He said one of his successors as SEC Chairman, Bill Donaldson, established the Office of Risk Assessment, but that it was diminished after his departure to only one staff member by last February.

Levitt said risk assessment should not be a sideshow, adding that the office should answer directly to the SEC chairman and report monthly to the entire commission.

"The complexity of today's products, markets and investment strategies calls for a laser-like focus on risk assessment," he wrote.

Levitt said the Madoff affair didn't prove that the SEC was a failed institution or that it needed more money to do its job.

"Rather, this scandal underscores the need for a 21st century regulatory approach," Levitt wrote.