Volcker Named to Panel That Will Advise on Too-Big-to-Fail

Volcker Named to Panel on Too-Big-to-Fail
Former Federal Reserve Chairman Paul Volcker had advised President Barack Obama during negotiations over what became the Dodd-Frank Act. Photo: Rich Clement/Bloomberg

Former Federal Reserve Chairman Paul Volcker and former Citigroup Inc. co-chairman John Reed have been named to a Federal Deposit Insurance Corp. panel that will help the agency map strategy for unwinding too-big-to-fail financial firms when they collapse.

Volcker, who advised President Barack Obama during negotiations over what became the Dodd-Frank Act, was named to the FDIC’s 18-member Advisory Committee on Systemic Resolutions along with Reed and current executives including BlackRock Inc. fixed-income chief Peter Fisher. The panel’s first meeting is set for June 21.

“Congress has given the FDIC a tremendous amount of responsibility to ensure that financial organizations formerly deemed too big to fail will no longer receive taxpayer funded bailouts,” FDIC Chairman Sheila Bair said today in a statement. “The Advisory Committee we created brings together some of the best and brightest minds to augment the groundwork that the FDIC has already put into place.”

Dodd-Frank, the regulatory overhaul enacted last year, gave the FDIC expanded power for resolving systemically important financial firms in the event of a collapse. Lawmakers granted the authority to prevent a repeat of the market tumult that followed the September 2008 bankruptcy of Lehman Brothers Holdings Inc., which sparked a credit freeze that led to government bailouts for companies including Citigroup.

‘Living Wills’

Bair, who is scheduled to step down on July 8, pushed for the resolution authority to be placed with her agency, citing the regulator’s experience shuttering big banks such as Washington Mutual Inc. and IndyMac Bancorp. The FDIC is currently drafting rules for the resolution authority, including seeking “living wills” from firms outlining how they should be unwound in event of a failure.

Firms subject to regulation as systemically important still must be designated by the Financial Stability Oversight Council, the panel of regulators assigned the task under Dodd-Frank.

The FDIC panel will provide guidance on the economic effects of large-firm failures and how resolution strategies would affect stakeholders, according to the release. The committee, which will also address relations with overseas regulators, is expected to meet at least twice a year.

Donaldson, Kohn

In addition to Volcker, Fisher and Reed, who has expressed misgivings about regulatory changes that permitted banks like Citigroup to become so complex, the panel includes former Securities and Exchange Commission Chairman William Donaldson, former Fed governor Donald Kohn, and Standard & Poor’s President Deven Sharma among its members.

Other members include H. Rodgin Cohen, senior chairman at law firm Sullivan & Cromwell LLP; Stanford University Professor Anat Admati; Michael Bodson, chief executive officer of the Depository Trust & Clearing Corp.; Charles A. Bowsher, former U.S. comptroller general; and Michael Bradfield, a former FDIC official.

Also, Janine Guillot, chief operating investment officer at the California Public Employees’ Retirement System; Richard J. Herring, a professor at the University of Pennsylvania’s Wharton School; Freddie Mac Chairman John Koskinen; Jerry Patchan, former director of the executive office of the U.S. Trustee; University of Chicago Professor Raghuram G. Rajan; Gary Stern, who served as president and CEO of the Federal Reserve Bank of Minneapolis; and Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan of School of Management who is also a Bloomberg View columnist.