Former regulators and legislators have created a new committee aimed at putting pressure on Washington officials to continue to focus on rules and laws aimed at reducing systemic risk in financial markets.
Ironically, the purpose of the new Systemic Risk Council announced today will be to encourage the types of agencies and regulation the insurance industry adamantly argues is not needed to monitor itself.
The new independent, non-partisan council will be headed by Sheila Bair, former chairman of the Federal Deposit Insurance Corporation.
Its purpose will be to “monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk.”
The Systemic Risk Council is comprised of a diverse group of experts in investments, capital markets and securities regulation, including senior advisor Paul Volcker, former chairman of the Federal Reserve.
“Despite the magnitude of the financial crisis, prospects for the major reform of regulatory systems are inadequate and vague,” the group said in announcing its creation. It will hold its first meeting in Washington, D.C. later this month.
According to Bair, concerns over the slow progress of regulators and standard-setters prompted the creation of the council.
The council will monitor and evaluate the activities of those committees with the Congressional mandate to develop and implement Dodd-Frank provisions related to systemic risk, including the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR).
“The great challenge is to devise a system to identify risks that threaten market stability before they become a danger to the general public,” Bair said.
Bair is also a senior advisor to The Pew Charitable Trusts.
“As evidenced by the 2008 crisis and even recent headlines, we need a more effective and efficient early-warning system to detect issues that jeopardize the functioning of U.S. financial markets before they disrupt credit flows to the real economy,” Bair said.
“And two of the most critical tasks are how to impose greater market discipline on excess risk taking and effectively end the doctrine too-big-to-fail,” she said.
Insurance regulation was not cited as the reason the group was forming the new panel.
But the insurance industry has put great pressure on the Obama administration through members of Congress to thwart efforts by the FSOC and the OFR, which is located within the Treasury Department, to increase federal oversight of state-regulated insurance companies.
These agencies were created by the Dodd-Frank financial services reform law to monitor risks created, for example, by the problems at American International Group.