Tags: AEI | FSOC | SIFI | government

AEI Launches Offensive Against FSOC — Part I

By    |   Monday, 12 May 2014 07:40 AM

On May 6, the American Enterprise Institute (AEI) hosted a luncheon meeting in the Rayburn Building of the House of Representatives titled "The FSOC's Regulation of SIFIs," an intense hour and a half session designed mainly to brief congressional staff, evidently predominantly Republican, on the message of elements of the financial services industry that are opposed to the implementation of title I of the Dodd-Frank Act, which created several new entities to help manage the next episode of the ongoing, permanent financial crisis, including the Financial Stability Oversight Council (FSOC).

Civilians are not usually privileged to attend meeting like this, so AEI has done a service by opening and broadcasting this one.

Composed of the heads of the financial regulators, the FSOC is empowered to identify risks to the stability of the financial system and to subject the largest, "too big to fail" banks and a group of nonbank financial institutions to be determined as systemically important financial institutions (SIFIs) to enhanced supervision by the Federal Reserve Board.

Readers may recall that the official narrative of the financial crisis from the Ministry of Truth is that the agencies that failed to prevent the 2008 episode lacked sufficient powers over nonbanks to prevent the crisis from having a devastating impact on the economy that lingers to this day. This narrative is the moral equivalent of the argument that the reason the nation was attacked on 9/11 was that it didn't have a Department of Homeland Security.

The theme of this week's articles will be to sketch out details of the industry campaign to discredit the FSOC, then report on the so-called "open meeting," at which the 2014 edition of the annual report of the FSOC was unveiled, and conclude with a report of the most recent testimony of Treasury Secretary Jack Lew, at which the industry objections were raised and repeated by a succession of Republican members of the House Financial Services Committee.

It looks like this industry campaign has the potential to be one of the top financial stories of the year, and these articles will lay the groundwork for reporting further developments. At the big picture level, this campaign against the FSOC is part of a larger industry strategy to oppose the implementation of Dodd-Frank. This writer privately predicted that such a campaign would take place, a prediction that was not difficult to make, because the financial lobbies have resisted the implementation of every landmark statute enacted during the last four decades to ensure that financial crises could "never happen again."

The meeting was hosted by the government relations staff of AEI to convey the message that two segments of the financial services industry that have fallen under the scrutiny of the FSOC for potential designation of some of their members as SIFIs — insurance and asset management — are very unhappy about this. Whether this is objectively true or not is a good question, the answer to which may be forthcoming as the scenario plays out during the coming months and years.

Cynics would suggest that to be identified as such a large enterprise that its operations could threaten the stability of the financial system confers immense prestige on those companies, along with the expectation that the government will do everything in its power to prevent the failure of such a firm. Thus, when the too big to fail banks were summoned to Washington to be forced to take huge sums of money from the government, they staged an elaborate show of protest.

For the time being, at least, the message of this elaborate campaign is that these firms are hopping mad at the prospect of being designated by the FSOC as SIFIs.

(Archived video can be found here.)

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On May 6, the American Enterprise Institute (AEI) hosted a luncheon meeting in the Rayburn Building of the House of Representatives titled "The FSOC's Regulation of SIFIs."
AEI, FSOC, SIFI, government
Monday, 12 May 2014 07:40 AM
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