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Entries in Regulation (2)

Wednesday
Sep212011

Federal Regulations: Are American Businesses Unduly Burdened?

Jupiterimages/Thinkstock(WASHINGTON) -- Whether it’s in a Republican jobs agenda, a presidential executive order or a think tank report, some government regulations have been targeted as unnecessary burdens.  And at a time when job creation is the number one goal of most lawmakers, decreasing businesses’ regulatory burden is one way politicians -- particularly Republicans -- are looking to inspire private businesses to create more jobs.

But despite cries that American businesses are over-regulated and over-burdened, the United States still ranks as one of the best countries to start a business.  Worldwide, only Singapore, Hong Kong, New Zealand, and the United Kingdom have a more business friendly environment, according to the 2010 International Finance Corporation and World Bank “Doing Business” report.

“When you see how the U.S. performs, it still is in the top five economies, so it is kind of difficult to do better than the U.S.,” said Jean Michel Lobet, a private sector development specialist at the World Bank who works on the Doing Business report.  An updated version of the report will be released in mid-October.

Lobet said regulations in this country are “adequate,” “relatively streamlined” and provide the “right balance.”  Compared to other countries, the rules around starting a business are simple enough that it takes on average just six days to create a business in America.  In Canada and China, the United States’ two largest trading partners in July, it takes five and 38 days, respectively.

Despite overall good rankings worldwide, regulations still pack a costly punch for American businesses, although the exact price tag for federal regulations is highly disputed.

One area where the United States has “a lot of room to improve” is in construction permits, Lobet said.  The report found that 19 procedures are necessary to build a warehouse and they take 40 days to complete, pushing the U.S. down to number 27 in the world rankings.

According to a Small Business Administration report, all federal regulations combined cost American businesses about $1.75 trillion in 2008, or $8,000 per employee.  More than $5,000 of those costs per employee stem from economic regulations, while more than $1,500 come from environmental rules, the report notes.  These findings have been disputed because some economists claim they are based on incomplete and out-of-date data.

“Regulations are costly.  That’s always true.  And that makes it more difficult to hire people and to conduct your business,” said Paul Schultz, the director of the Center for the Study of Financial Regulation at Notre Dame University’s Mendoza School of Business.

During Obama’s first two years in office, 555 new “significant” regulations, or ones that have a cost or benefit of at least $100 million in a year, have been enacted, according to the Office of Management and Budget.  Over the eight years that former president George W. Bush was in office, about 2,380 regulations were enacted, an average of 595 every two years.

Copyright 2011 ABC News Radio

Monday
Sep192011

Bailed-Out UBS Trading Incident Could Lead to More Regulation

SEBASTIAN DERUNGS/AFP/Getty Images(LONDON) -- After a securities trader was arrested and charged in London in connection with $2.3 billion in rogue trades at Swiss bank UBS, analysts have warned that more regulation is pounding its fist on bank doors.

With already fragile confidence in UBS, Switzerland's largest bank, critics point to the fact that UBS was the beneficiary of a bailout on the other side of the Atlantic.  In the U.S., the Treasury stepped in with a $700 billion bailout of all the major banks during the financial crisis in 2008.  New regulations followed here and in the United Kingdom in an effort to stem future taxpayer bailouts.

Kweku Adoboli, 31, was arrested on Thursday on suspicion of fraud and is still in police custody, according to the British newswires of the Press Association.  He was charged on Friday with fraud and false accounting for the unauthorized deals.

Adoboli started working for UBS as a trainee investment adviser in March 2006 and has had no disciplinary action taken against him previously, according to the Financial Services Authority register of advisors, as reported by the Press Association.

Erin Davis, senior stock analyst with Morningstar, said it seems Adoboli worked in the back office until he was promoted to the trading floor, which points to "below average" risk controls at the bank.

"A lot of banks won't allow that kind of promotion explicitly to avoid creating this kind of opportunity.  It appears that the trader, because of his back office experience, was able to by-pass the risk management systems," she said.

During the financial crisis, UBS lost nearly 30 billion Swiss francs, or $34.5 billion, and had to be bailed out due to its investments in low-quality assets, especially U.S. subprime mortgages.  As a result, UBS raised over $5 bilion from the Swiss government and it was permitted to transfer up to $60 billion in distressed assets to a fund supported by Switzerland's central bank.

With the news of the rogue trader last week, Davis said more regulation is likely on its way.

Davis said the most obvious solution to prevent unauthorized trades, or other potentially risky situations for investment banks, would be for Switzerland to require its banks to "ringfence" its retail or "plain-vanilla" commercial banking operations from its investment bank, as the U.K. is trying to do.

The U.S. is also implementing a similar policy after the Dodd-Frank Act passed the Volcker rule.  That policy prohibits American banks from executing particular speculative investments that could harm their customers.

Copyright 2011 ABC News Radio







ABC News Radio