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Regulators Questioned on ‘Too Big to Fail’ Designations and Lack of Transparency


Washington, Dec 8 -

WASHINGTON – Members of the Financial Stability Oversight Council (FSOC) faced questions about their ability to designate insurers and financial companies as “systemically important” and the Council’s lack of openness and transparency at an oversight hearing of the Financial Services Committee on Tuesday.  Eight of the Council’s 10 voting members appeared at the hearing.

“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,” said Chairman Jeb Hensarling (R-TX).  “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.”

Roy Woodall, Jr., the Council’s independent insurance expert, said a designation that insurance companies are “systemically important” also could result in “higher prices” for consumers.

Key Takeaways:

  • The FSOC’s structure politicizes the regulatory process by concentrating authority in the hands of the FSOC’s members, who with one exception are presidentially-appointed heads of regulatory agencies.  The FSOC’s structure thus not only distorts the lines of accountability and expertise among regulators, it distorts the balance that exists within regulatory agencies and erodes their independence.
  • FSOC holds most of its meetings in private, and the publicly released minutes of those meetings are almost entirely devoid of substantive information on what the FSOC members discussed. The SIFI designation process has been marked by a striking lack of due process; businesses that find themselves in the FSOC’s cross-hairs have limited access to the deliberative materials on which the FSOC relies in making its determinations, and limited opportunity to modify their activities to become less “systemic” and thereby avoid designation.