U.S. financial regulators should speed up designation of systemically important nonbank firms to bolster efforts to prevent a repeat of the 2008 credit crisis, according to members of the newly formed Systemic Risk Council.
The council, a group of former regulators, lawmakers and business leaders holding an inaugural meeting in Washington today, was formed to counter industry lobbying that members say undermines the Dodd-Frank Act response to a collapse that led to U.S. bailouts for the biggest banks and nonbank companies including American International Group Inc.
“There aren’t enough voices, frankly, on the other side trying to cast the issues in the public interest,” said former Federal Deposit Insurance Corp. Chairman Sheila Bair, who is leading the risk panel. “This is not a group that’s anti-industry, but it’s independent of the industry,” Bair, now a senior adviser to the Washington-based Pew Charitable Trusts, said in an interview.
Council members, who have criticized delays in Dodd-Frank implementation, plan to monitor the regulatory overhaul and identify systemic risks to U.S. financial markets. They will provide commentary on and release reports to the Financial Stability Oversight Council and the Treasury Department’s Office of Financial Research, both created by Dodd-Frank.
Members of the risk council, a joint effort of Pew and the Charlottesville, Virginia-based CFA Institute, say regulators should immediately adopt tighter capital rules for the biggest banks and simplify the so-called Volcker rule to ban banks’ proprietary trading in addition to designating systemically important nonbanks.
Treasury Secretary Timothy F. Geithner and other leaders of the FSOC should do more to speed their work, Bair said.
“I fault the FSOC leadership and the FSOC process,” said Bair, who was a member of the FSOC when she ran the FDIC. “I think there are a number of things that could be done, speaking out more publicly, having more meetings, knocking more heads.”
In addition to Bair, the group’s members include former U.S. Treasury Secretary Paul O’Neill; John S. Reed, former co-chairman and co-chief executive officer of Citigroup Inc.; and Brooksley Born, former chairman of the U.S. Commodity Futures Trading Commission. Former Federal Reserve Chairman Paul Volcker will serve as the council’s senior adviser.
The group carries “a lot of gravitas” that makes it more likely to be heard against the “relentless industry lobbying against the rules,” Bair said.