By Gary Gensler
We are now in one of the defining moments in our nation’s financial history. The Congress is taking up broad regulatory reform. One year ago, the financial system failed the American public. The financial regulatory system failed the American public.

Congress swiftly committed more than $700 billion of taxpayer money to rescuing the financial industry – without which the financial system never would have stabilized. The crisis was not isolated to Bear Stearns, Lehman Brothers or AIG. It threatened the savings and livelihoods of every American. Let us recall, the financial bailout was only a means of getting a sinking ship back to port. It is now our responsibility to fix the ship before it can set sail again. We must ensure that this type of failure never threatens our nation again.

I have spent half my adult life working on Wall Street. I worked with talented individuals from around the world who operated at the highest levels of professionalism. More broadly, the industry plays a fundamental role in pricing and allocating capital and risk in our economy.

But being talented and working in such a critical industry doesn’t mean that individuals can’t make mistakes or that the system is flawless. The crisis eased only through strenuous effort and some considerable good fortune. Now we must ensure that the risks generated by the financial sector are never allowed to push us so close to the brink again. Some may accuse us of overreacting and overreaching. But the worst financial crisis in 80 years demands the most comprehensive regulatory reform in generations.

Though there are certainly many causes of the crisis, I think most would agree that the unregulated OTC derivatives marketplace played a central role. The time has come for comprehensive regulation.

In just the past week, two important committees in the U.S. House of Representatives – the Financial Services Committee and the Agriculture Committee – took up this reform. The House Financial Services Committee passed historic legislation that, for the first time, introduces comprehensive regulation to the OTC derivatives marketplace. The House Agriculture Committee is marking up a similarly historic bill later today.

Both of the committees’ bills include three important elements of regulatory reform: First, they require swap dealers and major swap participants to register and come under comprehensive regulation. This includes capital standards, margin requirements, business conduct standards and recordkeeping and reporting requirements. Second, the bills require that dealers and major swap participants bring their clearable swaps into central clearinghouses. Third, they require dealers and major swap participants to use transparent trading venues for their clearable swaps.

The challenge remains, though, determining which transactions should be covered by these reforms. I believe that we must bring as many transactions under the regulatory umbrella as possible. This will best accomplish the two principal goals of reform: lowering risk to the American public and promoting transparency of the markets.

One of the lessons learned from last year’s crisis is the financial system can sometimes concentrate and heighten risk. In that regard, all OTC transactions, where possible, should be required to be cleared by robustly regulated central counterparties. This should include both transactions between two swap dealers or major swap participants as well as transactions with financial and corporate end-users.

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