Bair Says Regulators Lack Spine to Name Systemic Firms
Sheila Bair, former chairman of the Federal Deposit Insurance Corp., said U.S. regulators lack the nerve to designate non-bank financial companies systemically important and aren’t doing their job.
“It’s lack of will, it’s lack of courage, it’s lack of spine,” Bair said in a telephone interview yesterday. “You can quote me on that and they’ll be angry with me, but I don’t care. This is outrageous.”
The Financial Stability Oversight Council, led by new Treasury Secretary Jacob J. Lew, met yesterday in Washington and discussed companies it is considering designating for Federal Reserve oversight. American International Group Inc. (AIG), Prudential Financial Inc. and General Electric Co.’s finance unit are in the final stage of review by the council, a group of regulators created by the Dodd-Frank law to prevent another financial crisis.
“What’s frustrating is the ones that we said were systemic during the crisis, like AIG and GE Capital, they can’t even say that they’re systemic,” said Bair, who led the FDIC during the 2008 financial crisis. “We seem to be able to decide in a nanosecond if it involves shoveling taxpayer money out the door to keep these guys afloat.”
Anthony Coley, a Treasury spokesman, referred to testimony by Mary Miller, the Treasury’s undersecretary for domestic finance. On Feb. 14, Miller told the Senate Banking Committee that the council has taken “significant steps to designate and increase oversight of financial companies whose failure or distress” could hurt financial stability.
Lew, sworn in yesterday as Treasury secretary, heads the council, which also includes the chairmen of the Fed, FDIC and Securities and Exchange Commission. The panel missed former Treasury Secretary Timothy F. Geithner’s target of designating some non-bank financial companies as systemically important by the end of 2012.
In addition to reviewing firms in the final stage of the process, the FSOC last year designated eight so-called financial market utilities as systemically important. The companies, which are involved in clearing, payment and settlement systems, are now subject to higher risk-management standards and Fed oversight, Miller told the committee.
The council should have been able to make systemic-risk designations six months after Dodd-Frank was enacted in July 2010, said Bair, who is now a senior adviser to the Pew Charitable Trusts and heads the Systemic Risk Council, a private watchdog group focused on regulatory issues. Regulators have the authority to act and aren’t “doing their job.”
“I don’t like to criticize my former colleagues, but unless people start holding them more accountable to do this, it’s not going to get done,” Bair said.
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