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: Jim Hamilton's World of Securities Regulation

By Jim Hamilton

Geithner Defends Administration's Reform Plan

In prepared testimony released ahead of a pending appearamce before the Senate Banking Committee, Treasury Secretary Tim Geithner defended the Administtration?s proposal to name the Federal Reserve Board the primary systemic risk regulator in the reformed financial regulatory regime. The Fed is best positioned to play that role, he said, since it already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks. The Secretary also pointed out that the Fed will be aided in that role by a new Financial Services Oversight Council composed of the heads of all of the major federal financial regulatory agencies, including the SEC and CFTC. The Council will fill gaps in the regulatory structure where they exist. It will improve coordination of policy and resolution of disputes. And, most importantly, it will have the power to gather information from any firm or market to help identify emerging risks.

The Fed will regulate systemically significant financial firms, what the Administration plan calls Tier 1 financial holding companies, including the parent company and all its subsidiaries, foreign or domestic. The Council will be authorized to facilitate information sharing and coordination, identify emerging risks, resolve jurisdictional disputes among regulators, and, advise the Fed on identifying firms whose failure could pose a threat to market stability and would qualify as Tier 1 financial holding companies and be subjected to systemic risk regulation.

The Secretary noted that the Council does not have the responsibility for supervising the largest, most complex and interconnected institutions. The reason for that is that systemic risk regulation is a specialized task, which requires tremendous institutional capacity and organizational accountability. The Council would not be an appropriate first responder in a financial emergency, he noted, adding that ``You don't convene a committee to put out a fire.??

Full post as published by Jim Hamilton's World of Securities Regulation on June 18, 2009 (boomark / email).