Sen. Richard Shelby, the ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, voiced skepticism on Thursday that the Financial Stability Oversight Council would find success.
In a committee hearing to address the release of the FSOC annual report, Shelby, R-Ala., said, “Rather than being a forward-looking study of the risks to the U.S. financial system, the report is largely a lengthy summary of statistics with lots of colorful graphs.”
“If the annual report is an accurate representation of the council’s progress, I remain as skeptical of its chances of success as I was when my friends on the other side of the aisle proposed its creation,” he added. “For example, the annual report does not provide much evidence that the council was ahead of the Eurozone crisis. The countries of Spain and Italy are not even mentioned in the discussion of sovereign credit risk. In addition, it does not address, or even attempt to address, many of the key economic issues we presently face.
During the same hearing, Treasury Secretary Timothy Geithner defended the reaction of both the FSOC and the administration to events in the United States and Europe, reading from a list of steps taken:
- The weakest parts in our financial system—the entities that took the most risk—no longer exist or have been significantly restructured.
- The firms that survived are better capitalized—large banks have increased common equity by over $300 billion since the beginning of 2009. And the level of common equity to risk weighted assets across these banks is now approximately 10 percent, up from 6 percent at the beginning of 2009.
- Banks are funding themselves more conservatively and are maintaining much larger cushions of safe and liquid financial assets. Debt maturing in one year or less at the largest institutions, as a share of total liabilities, has declined dramatically to roughly 40 percent of the pre-crisis level.
- The major banks have reduced the size and overall risk in their balance sheets, resulting in a substantial decrease in leverage—a major source of risk—compared to pre-crisis levels.
- The “shadow banking system”—the financial firms that operate outside of a framework of oversight and prudential regulation—is much smaller, with assets at roughly half the level of 2007.
Geithner also called for the passage of the $400 billion American Jobs Act, saying the state of the economy “makes it even more important that Congress act to strengthen growth now and put our fiscal position on a more sustainable path.”
“The American Jobs Act provides a substantial package of tax cuts and investment that, according to estimates by outside economists, would raise economic growth by one to two percentage points and help create one to two million new jobs,” he said.