A top US Treasury official on Monday said that recent market turmoil highlighted the need for strong discipline and "robust" risk management, but stressed markets were working through their problems.
"Risk management is not some part-time responsibility - it's a fundamental obligation of a fiduciary's duty," Assistant Secretary Anthony Ryan told the National Association of State Treasurers in a speech. He noted that many fiduciaries struggle with complexity in the financial markets, but this cannot justify a loss.
"We must also acknowledge that complexity can be no excuse for an existing investor or buyer of such a security to justify a loss," he said. "Excesses had built up and we are in the process of working through them today," Ryan told the audience in response to a question about ongoing strains in markets caused by the collapse of the US subprime market and ensuing credit crunch.
"Our capital markets are so integrated that it is hard to suggest that you can isolate one sector, one asset class," he said when asked by one state treasurer who was vexed by the recent volatility suffered by normally very stable securities. Ryan said that the government was working hard to come up with a suitable response to the current market strains.
But he stressed that care needed to be taken not to unleash a regulatory backlash that would do more harm than good in the long run and "stifle some of the innovation and creativity" that has made US capital markets so competitive, he said.