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“Out of Business” FSOC Puts Another Nail in Its Own Coffin

FOR IMMEDIATE RELEASE
Wednesday, March 6, 2019
Contact: Nick Jacobs, 202-618-6430 or njacobs@bettermarkets.com

 

“Out of Business” FSOC Puts Another Nail in Its Own Coffin

Washington, D.C. – Following the announcement today from the Financial Stability Oversight Council (FSOC) that it would be putting forth a proposal to shift to activities-based regulation of nonbanks, Dennis Kelleher, president and CEO of Better Markets, issued this statement:

"The FSOC today proposed to intentionally blind itself to risks at systemically significant nonbank entities by determining to look virtually exclusively at activities, an untested, unproven and impractical way to determine or regulate systemic risks.  Moreover, by needlessly adding a quantitative cost-benefit analysis and a speculative assessment of how likely a company is to experience financial distress, the FSOC all but guarantees it will not be designating nonbank systemic threats.

"These actions irresponsibly ignore the lessons of the 2008 crash, which was ignited in and spread by systemically significant nonbanks in the shadow banking system.  Coming on top of its de-designation of the only three designated nonbanks, these actions are just another nail in the coffin of FSOC which is basically putting an “out of business” sign on its door.

"If the FSOC’s new methods for evaluating systemically significant nonbank activities were used in the years before the 2008 crash, it is extremely unlikely that any of the many nonbanks that collapsed or were saved by trillions of dollars in bailouts would have been identified or designated as systemically significant.  Think AIG, Bear Stearns, Lehman Brothers, Goldman Sachs, Morgan Stanley, money market funds, and so many more.

"By caving to industry demands, the FSOC has subordinated the public interest to private profit maximization.  Designating nonbank entities or activities as systemically significant is not an either/or choice; it is both, depending on the facts and risks.  It is irresponsible to prejudge a systemic risk analysis, which only increases the likelihood of future crashes and bailouts."

 

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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