Media Buzz: FSOC Designates Non-Bank Financial Institutions as 'Too Big to Fail'
June 04, 2013
Yesterday the Financial Stability Oversight Council (FSOC) put hardworking taxpayers at greater risk of being forced to fund yet another Wall Street bailout.
Under their Dodd-Frank authority, the FSOC took preliminary steps to designate several non-bank financial institutions, including AIG, Prudential Financial and GE Capital, as “systemically important financial institutions” (SIFIs). That’s regulator speak for “too big to fail” (TBTF).
Designating any company as ‘too big to fail’ is bad policy and even worse economics. So while Dodd-Frank supporters see these designations as progress and AIG’s Bob Benmosche sees them as success, we see Dodd-Frank’s self-fulfilling prophecy giving these firms market advantages over their competitors and helping to make them even bigger and riskier than they otherwise would be.
Here’s what they’re saying:
Bloomberg: AIG, Prudential Named Systemically Important by Panel
The council’s move puts taxpayers at “greater risk of being forced to fund yet another Wall Street bailout,” Jeb Hensarling, a Texas Republican, said in a statement. “Designating any company as ‘too big to fail’ is bad policy and even worse economics.”
AIG Chief Executive Officer Robert Benmosche told the council in November that the insurer wouldn’t oppose designation.
CNBC/Reuters: Regulators Propose Scrutiny of AIG, Prudential, GE Capital
Critics of the risk council's process, on the other hand, argue that regulators have not sufficiently explained why they believe the nonbank companies under consideration would destabilize financial markets if they were to fail.
Others say tagging some companies systemically important could send a message to markets that those companies would be bailed out in a crisis because regulators believe they are "too big to fail."
"Designating any company as 'too big to fail' is bad policy and even worse economics," said Rep. Jeb Hensarling, a Texas Republican who is the chairman of the House of Representatives Financial Services Committee, in a statement.
USA Today: Regulators pick non-bank firms for more oversight
But Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, said Monday that branding firms "too big to fail" gives them "market advantages over their competitors, helping to make them even bigger and riskier than they otherwise would be."
AP: U.S. proposes labeling some nonbanks as financial threats
Hensarling, a vocal opponent of the financial overhaul law, said the designation of firms will become "a self-fulfilling prophecy" by giving them market advantages over their competitors.
The Hill: Financial firms face new clampdown
Huffington Post: 'Systemically Important Financial Institutions' Named By U.S. Regulator In Crackdown