STONE MOUNTAIN, Ga. - Atlanta Federal Reserve Bank President Dennis Lockhart said Tuesday that, ideally, the financial system will be reformed in such a way as to reduce risk and increase efficiency without increasing regulatory burdens or discouraging innovation, but he suggested that there is a long way to go to achieve those objectives.

Lockhart, opening a discussion of financial reform at the Atlanta Fed annual financial markets conference, said the 2010 Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) will have untold effects on the financial system as mandated rules yet to be written by a host of regulatory agencies.

"The devil will be in the details," he said, echoing a theme of the conference.

He had two premises. First, "the overall effectiveness, as well as the effectiveness of specific areas of focus of financial reform will depend on details of rules promulgated by the Federal Reserve and other regulators."

And second, "the ultimate product of the process of rule-making and rule alteration will deeply affect the shape of financial markets going forward."

Lockhart said "the natural response to a financial crisis which caused such a deep and painful recession was to proclaim 'never again.'"

Dodd-Frank is "the tangible expression of outrage" and "a drive to eliminate or at least contain the causes of crisis," he said.

Yet Dodd-Frank, despite its 2,000-plus pages, is "largely a conceptual set of reforms" that have yet to be fleshed out, said Lockhart.

Dodd-Frank "requires 400 rules to be written by 20 agencies, and as of today almost two years after Dodd-Frank became law, many rules have not yet been written," he said. "So much of the detailed work still lies ahead."

Lockhart said "markets and the financial system in general will be involved in reacting to specific rules and the consistency among related rules."

And he warned that "the details of the rules will influence the structure of firms, the landscape of participants in markets and the interplay of regulation and evolving risks."

Among the effects of reform, Lockhart said housing finance and money market funds "may well be transformed."

If he had his druthers, Lockhart said he would like to see reform lead to "resilient financial system with substantially reduced systemic risk and reduced overall risk of financial instability."

He said he'd also like to see "greater vertical transparency" and a "greater awareness of the fault lines inherent in financial regulation." Also needed, he said, is "efficient supervision that enhances public interest ... without increasing compliance costs."

Reform needs to preserve "the capacity for innovation ... even while derisking the system overall," he added.

But Lockhart said "that's a tall order, and the devil is going to be in the details."

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