Federal Reserve Governor Daniel Tarullo said oversight of asset managers should focus on the industry overall, underscoring regulators’ shift away from singling out individual companies as systemically important.
Any potential risks, such as customer runs on accounts, would be “better addressed with market-wide regulation, as was the case in money-market funds, rather than through the designation of entities,” Tarullo said at a conference in New York on Thursday.
The Financial Stability Board, a group of international regulators that makes recommendations to the Group of 20 nations, plans to identify too-big-to-fail investment funds that could face stricter oversight.
U.S. regulators discussed in 2013 whether BlackRock Inc. and Fidelity Investments should be designated systemically important and subjected to Fed oversight. After an industry campaign against designation, regulators gradually shifted their approach to focus on products and activities.
In January, Tarullo said asset managers could pose potential risks in a future crisis if they are forced into fire sales, and said new regulations might be warranted to boost stability. While he didn’t back away from those comments on Thursday, he emphasized that potential risks should initially be evaluated on an industrywide basis.
The Financial Stability Oversight Council, a group of U.S. regulators that is led by Treasury Secretary Jacob J. Lew and includes Fed Chair Janet Yellen, has designated four companies systemically important since it was created in 2010. Three are insurers and one is the finance arm of General Electric Co.
Tarullo said the FSOC and the Fed are continuing to study financial market volatility and what industry executives say is a lack of liquidity. A report on the events of Oct. 15, when yields on 10-year Treasuries plunged the most since 2009, will probably be completed by regulators this summer, he said.
The Fed, along with the FSB, is also continuing work on rules designed to smooth the wind-down of failed banks, Tarullo said. The FSB’s proposal on total loss-absorbing capacity, or TLAC, requires systemically important banks to ensure that their main subsidiaries can be stabilized and shut down in an orderly way, without a taxpayer bailout.