The U.S. Securities and Exchange Commission’s Michael Piwowar called an umbrella group of financial regulators a “vast left-wing conspiracy to hinder capital formation.”
The Financial Stability Oversight Council’s initials really stand for “Firing Squad on Capitalism,” Piwowar, 46, said yesterday in a speech at the American Enterprise Institute in Washington. He called the FSOC “The Bully Pulpit of Failed Prudential Regulators” and “The Dodd-Frank Politburo,” adding that his opinions are his own and that the pejoratives are “entirely accurate.”
The 2010 Dodd-Frank Act created the FSOC to prevent another financial crisis. The law enabled the council, which includes the U.S. Treasury secretary and Federal Reserve chair, to designate firms “systemically important” if their failure could endanger financial stability. Piwowar, one of five SEC commissioners, called the FSOC secretive and a threat to his agency’s power in a January speech.
The American Enterprise Institute, which calls itself a promoter of limited government and free enterprise, titled the event “Can Committees Create Financial Stability?” Piwowar, a former chief Republican economist for the Senate Banking Committee, spoke after U.S. Representative Scott Garrett, a New Jersey Republican.
It’s a contradiction that a firm can submit an approved plan to be wound down without jeopardizing the financial system and “still be designated systemic after that,” Garrett said. The securities and investment industry has been the top contributor to his campaigns, according to the nonpartisan Center for Responsive Politics.
The congressman questioned Fed Vice Chairman Stanley Fischer’s call this month for regulators to add financial stability to their mandates.
“‘Financial stability’ -- that’s a code for regulators to have a complete autonomy and unfettered discretion with no accountability to anyone,” Garrett said.
The Fed can impose stricter capital and liquidity requirements on companies deemed potential risks to the financial system. Some companies reviewed by the council resisted. Prudential Financial Inc., the second-largest U.S. life insurer, said it wasn’t systemically risky before getting that designation. No. 1 MetLife Inc., which is in the final stage of the review process, also said it doesn’t pose a threat.
John P. Davidson, Citigroup Inc.’s chief compliance officer, was featured on a panel that discussed improving the FSOC. The U.S. should strongly consider limiting financial regulation to “two and only two” agencies, one for conduct and one for stability, he said.
Citigroup was the biggest of five U.S. banks to fail the Fed’s annual stress tests this year, preventing the firm from increasing dividends and boosting stock buybacks.
“I will ask you to imagine a much simpler approach to regulating the banking industry than the 848 pages of the Dodd-Frank Act,” said Davidson, who like Piwowar added that his opinions are his own. He ended by quoting a Chinese philosopher’s instruction to “embrace simplicity.”