Hensarling Opening Statement at FSOC Oversight Hearing
December 8, 2015 -
“FSOC typifies not only the shadow regulatory system but also the unfair Washington system that Americans have come to fear and loathe: powerful government administrators, secretive government meetings, arbitrary rules, and unchecked power to punish or reward. Thus, oversight and reform is paramount."
WASHINGTON- Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s full committee hearing with eight of the 10 voting members of the Financial Stability Oversight Council:
Financial regulators possessed every regulatory power necessary to prevent the 2008 financial crisis, but failed to do so. Yet Washington rewarded them with vast, new sweeping powers over our lives and our economy. Nowhere is this more evident than in the Dodd-Frank Act’s Financial Stability Oversight Council whose members – save two – sit before us today.
FSOC is clearly one of the most powerful federal entities to ever exist and, unfortunately, also one of the least transparent and least accountable as well.
First, the Council’s power is concentrated in the hands of one political party, the one that happens to control the White House.
All but one of the FSOC’s members is the presidentially-appointed head of a federal agency, but interestingly the agencies themselves are not members, thus denying bipartisan representation. This structure clearly injects partisan politics into the regulatory process, it erodes agency independence, and it harms accountability. Furthermore, FSOC’s budget is not subject to congressional approval, removing yet another check and balance to its immense power.
FSOC has earned bipartisan condemnation for its lack of transparency. Two-thirds of its proceedings are conducted in private. Minutes of those meetings are devoid of any useful substantive information on what was discussed. Even Dennis Kelleher, the CEO of the left-leaning Better Markets, has said “FSOC’s proceedings make the Politburo look open by comparison. At the few open meetings they have, they snap their fingers and it’s over, and they are all scripted. They treat their information as if it were state secrets.”
Of all of the Council’s activities, none generates more controversy than its designation of non-bank financial institutions as “systemically important financial institutions,” or SIFIs.
Designation anoints institutions as Too Big to Fail, meaning today’s SIFI designations are tomorrow’s taxpayer-funded bailouts. Designation also ominously grants the Federal Reserve near de facto management authority over such institutions, thus allowing huge swaths of the economy to potentially be controlled by the federal government.
Members of the Council can merely raise the prospect of a SIFI designation and thereby eliminate entrepreneurial risk-taking, innovation and growth from our economy.
As a result, Americans may find themselves paying more to insure their homes and their families. Investors who relied on mutual funds to save for their children’s education or their own retirement will find they have earned less.
In addition to SIFI designations, FSOC is charged with identifying emerging threats to our financial stability but refuses to look in the mirror. In its latest annual report, it conspicuously omits any references to specific government policies or agencies as helping cause the systemic risk it identifies.
“[G]reater risk-taking across the financial system” is encouraged by “historically low-yield environment,” the Council reports. Yet the Council refuses to identify the obvious source of this apparent risk: the Fed’s unprecedented loose monetary policy.
The Council warns of reduced liquidity in the capital bond markets, yet never acknowledges that Dodd-Frank’s Volcker rule and other regulations have drastically reduced liquidity.
The Council lists “risk-taking large, complex, interconnected financial institutions” as a threat. Yet again, it fails to mention that Dodd-Frank amplifies this threat by empowering the Council to designate certain firms as Too Big to Fail.
FSOC typifies not only the shadow regulatory system but also the unfair Washington system that Americans have come to fear and loathe: powerful government administrators, secretive government meetings, arbitrary rules, and unchecked power to punish or reward. Thus, oversight and reform is paramount.
Click here for video of this statement.