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The System Risk Council, which will be advised by Paul Volcker, will provide outside commentary on the progress of overhauling the regulatory system.
June 6 -
While other regulators busily check off implementation goals set by last year's financial reform law, the new body charged with limiting threats to the financial system is getting lost in the shuffle.
July 12
WASHINGTON — A group of former policymakers is arguing that the government is not making good use of the regulatory reforms enacted in the Dodd-Frank Act nearly two years ago.
"Tools are only useful to the extent they are actively used, and used in the right way," Sheila Bair, former head of the Federal Deposit Insurance Corp., said Monday at the official launch of the Systemic Risk Council.
The new private-sector council, chaired by Bair and sponsored in part by The Pew Charitable Trusts, appears squarely focused on critiquing the slow pace of the Financial Stability Oversight Council, the panel of regulators headed by the Treasury secretary and charged with catching risks in the system before they effect financial Armageddon.
"After watching the slow progress of these bodies, we are concerned that little has been done to address systemic issues … throughout the financial system," said Bair, who is now senior advisor to Pew.
Bair, joined at Pew's Washington headquarters by other members of the new group for the announcement, said both FSOC and the new Office of Financial Research - which Dodd-Frank authorized to collect and analyze market data - have suffered from a lack of leadership.
"Somebody has to talk out and say what's not happening," said Ira Millstein, the group's legal counsel and director the Program on Global, Economic and Regulatory Interdependence at Columbia University's law and business schools, who called himself a "deeply frustrated, annoyed and angry citizen."
"It has no leader," Millstein said of FSOC. "Shouldn't the country know that FSOC, which was supposed to be the group to put this all together, has no leadership?"
The Systemic Risk Council, which is also sponsored by the CFA Institute, will focus on six areas requiring quicker action by FSOC and its individual members. They include: rules to require stronger capital at the nation's largest firms; the designation of systemically important nonbank financial institutions and rules to "avoid a repeat" of the problems caused by shadow banking; getting the OFR "fully functioning," and securing confirmation of a director for the research office; speeding up the agreement among regulators to implement the ban on banks' proprietary trading, known as the Volcker Rule; finishing rules for the over-the-counter derivatives market; and addressing coordination among international regulators.
The group will be "speaking out more publicly, having more meetings, knocking more heads," Bair said. "There are a lot of things that we can do."
Members of the new council repeatedly said its purpose includes counteracting efforts by the industry to undercut reforms established by Dodd-Frank.
"Indeed, they are under attack by many of the firms who brought us the financial crisis, through lobbying for the dismantling of protections in the Act, delayed rulemaking procedures, challenging the rules in the courts, trying to defund regulatory agencies and preventing the appointment of key regulators, to name just a few of their tactics," said Brooksley Born, a member of the private-sector council who formerly chaired the Commodity Futures Trading Commission and is a vocal critic of the derivatives market.
Members of the new group said FSOC's success in improving systemic risk oversight is not just academic, with threats from Europe and the United States' own fiscal problems putting the financial system in a position possibly even more precarious than before 2008.
"Today our economy arguably faces even greater potential problems than it did in the run-up to the subprime crisis," said Bair. "Now is not the time for complacency."
