Former top financial regulators warn against easing oversight of firms – San Francisco Chronicle


Two former Treasury secretaries joined two former Federal Reserve leaders Monday to warn that the Trump administration’s efforts to relax oversight of certain financial firms could seriously threaten the stability of America’s financial system.

The stark warning came two months after a federal oversight panel said it planned to stop designating large, non-bank financial institutions like insurers and asset managers as “systemically important” and placing them under stricter federal oversight.

The Financial Stability Oversight Council move would ease a process put in place after the 2008 financial crisis that aimed to prevent non-bank financial firms, like American International Group, from posing a risk to the U.S. economy. Instead of designating companies that the government believes pose a risk to the financial system, they have proposed designated “activities” that pose a risk, such as certain financial products.

Regulators who dealt with the aftermath of the crisis fear that dropping the designation could be a grave mistake. On Monday, the former Treasury secretaries, Jacob Lew and Timothy Geithner, and the two former Fed leaders, Ben Bernanke and Janet Yellen, urged their successors, Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell, to rethink the plan.

“Though framed as procedural changes, these amendments amount to a substantial weakening of the post-crisis reforms,” the four wrote in a letter. “These changes would make it impossible to prevent the buildup of risk in financial institutions whose failure would threaten the stability of the system as a whole.”

Geithner, Lew and Yellen were nominated to their posts by President Barack Obama. Bernanke was nominated by President George W. Bush.

The Financial Stability Oversight Council proposed abandoning the designation in March, and the public comment period on the proposal ends Monday.

In their letter, Bernanke, Geithner, Lew and Yellen recounted the history of the 2010 Dodd-Frank Act, the federal legislation that created much of the financial system’s post-crisis regulatory architecture. They also explained the logic for applying extra scrutiny to non-bank financial institutions like insurers and money managers.

In the wake of the crisis, just four non-bank financial institutions were designated as “systemic” and all four ultimately argued successfully to have the label lifted. Prudential Financial was the last of the four to shed the designation, with the oversight council concluding last fall that it no longer represented a threat to financial stability.

The oversight council said in March that it would use a new method for determining whether firms posed broad risks to the financial system and that it would only label institutions “systemically important” in extremely rare cases.

The former regulators, who served on the oversight council while in their previous government roles, warned that the process the panel was now proposing would be too slow for reviewing and responding to the conduct of firms.

Alan Rappeport is a New York Times writer.



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