New systemic risk regulatory council sets goals

Introduction

Reform watchers expecting a “Showdown in the Cash Room” between the primary U.S. financial regulators didn’t see anything resembling a regulatory fight club this afternoon.

At the first meeting of the Financial Stability Oversight Council, which lasted just over 30 minutes, the heads of the major financial regulatory agencies were unanimous on every vote in what appeared to be a carefully planned show of unity. The council, which met in the Treasury Department’s aptly-named ceremonial Cash Room, is charged with nothing less than identifying emerging problems in U.S. markets and correcting them swiftly to prevent a repeat of the 2008 financial collapse.

Created by the Dodd-Frank financial reform law, the council forces regulators who are accustomed to running their own agencies to work together to identify “dark corners” of the market that could pose potential risks, as John Walsh, acting Comptroller of the Currency, put it during today’s meeting.

As Financial Reform Watch noted earlier this week, regulators have already had a few testy moments when it comes to the new supervisory council led by Treasury Secretary Timothy Geithner. Sheila Bair, the chairman of the Federal Deposit Insurance Corp., and Geithner clashed a few days ago when he sought to delay the FDIC from setting new standards requiring companies to retain at least 5 percent of securitized assets. The FDIC board, however, brushed aside his concerns about the already weak market for securitized mortgages and approved new standards.

At the meeting today, Bair went out of her way to compliment the Treasury chief. “We appreciate the collaborative effort of you and your excellent staff,” Bair said.

It was clear, though, that the details had all been hashed out behind closed doors either in the days and weeks leading up to the first meeting, as well as the hour-long closed-door session that preceded the meeting in front of the cameras.

On the transparency front – which the Obama administration has made a high priority for all federal entities – the council promised to have open meetings as often as possible and at least two per year. But some sessions will have to be closed to the public when market-sensitive data or issues about individual banks are discussed, it said, to “prevent destabilizing market speculation that could occur if that information were to be disclosed.”

The council’s nine voting members unanimously agreed to ask for public input before a Jan. 22 deadline to act on the so-called “Volcker rule” to restrict risky bank trading. Also approved was a list of questions it wants public input on to guide its work in designating which non-bank financial companies are systemically important and need extra supervision. The council has a March 31 deadline to finalize how to carry that out.

The regulatory group also helpfully published a FAQ here about the council’s work, and a roadmap that tracks key rulemakings and studies required by the Dodd-Frank law.

The roadmap showed work planned by various financial regulators through the end of 2010 includes:

• Studying the concentration and size of U.S. banks, with a rulemaking to follow in 2011;

• Creating an Office of Minority and Women Inclusion, which will “ensure equal employment opportunity and racial, ethnic and gender diversity;”

• Creating new SEC offices to oversee credit rating agencies, whistleblower protections, and one for an investor advocate;

• Launching a study for Congress about the conduct of investment advisers and broker dealers;

• Proposing rules for conflicts of interest and disclosures by credit rating agencies;

• Proposing rules for hedge fund adviser registration with the SEC.