U.S. risk council takes first steps on Dodd: Frank

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Treasury Secretary Timothy Geithner looks on during the G20 Finance Ministers and Central Bank Governors Meeting in Busan, South Korea June 5, 2010. REUTERS/Andy Wong/Pool

Treasury Secretary Timothy Geithner looks on during the G20 Finance Ministers and Central Bank Governors Meeting in Busan, South Korea June 5, 2010.

Credit: Reuters/Andy Wong/Pool

By Dave Clarke

WASHINGTON | Fri Oct 1, 2010 6:11pm EDT

WASHINGTON (Reuters) - A new council of U.S. regulators charged with identifying risks to the financial system acted on Friday to begin implementing the new financial regulatory overhaul law.

The Financial Stability Oversight Council held its first meeting and voted to seek public comment for a period of 30 days on the Volcker rule, which restricts risky bank trading.

The panel also sought comments on what criteria should be used to decide which large non-bank financial companies should be supervised by the Federal Reserve.

Both votes were unanimous.

The recently enacted Dodd-Frank financial law tasks the panel with identifying threats to markets before they spread, in order to prevent a repeat of the 2007-2009 financial crisis.

The council is headed by U.S. Treasury Secretary Timothy Geithner, joined by top officials from the Fed, Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Deposit Insurance Corp.

"We're going to try very hard to make sure that these rules, this huge complicated burden of rule writing... is done carefully and quickly," Geithner told the meeting.

Participants gathered around a u-shaped table in Treasury's Cash Room, with Geithner at the head flanked by Fed Chairman Ben Bernanke on his right and FDIC Chairman Sheila Bair on his left.

The panel met privately ahead of the public portion of their meeting, which lasted about 20 minutes and contained little discussion about the issues.

The council has 10 voting members but there are currently two vacancies: the head of Consumer Financial Protection Bureau and an insurance expert. Both need to be appointed by the president and confirmed by the U.S. Senate.

It remains to be seen how well panel members will work together and to what degree bureaucratic and political rivalries will undermine its effectiveness.

There was a cooperative tone in agency leaders' public comments on Friday, and CFTC Chairman Gary Gensler drew a chuckle when he reminded Geithner he could not end the meeting without a vote.

Financial industry officials are warily following the council's work, which is expected to lead to tighter supervision of their business practices.

"Anybody who works in the financial industry understands that decisions made will be against their agenda nine times out of ten," said Matt McCormick, a banking analyst and portfolio manager at Bahl & Gaynor.

"The only thing that is debatable is how they hit them -- will it be with a club or will it be with a scalpel?" he said.

Mike Holland, president of money manager Holland & Co in New York, said he feared that the council would be the latest government body to make up its rules as it goes along.

"What comes out of this causes trepidation for anyone who's ox can be gored as a result," Holland said.

The Volcker rule restricts banks from trading with their own money, known as proprietary trading, and only allows them to invest up to 3 percent of their Tier 1 capital in hedge funds and private equity funds.

The council has until mid-January to study the rule before making recommendations on how it should be implemented. Regulations are due nine months after the study is completed and they will go into effect about a year later.

Banks aren't waiting for this process to play out. Earlier this week, Reuters reported that Bank of America Corp is cutting about 20 to 30 employees from its proprietary trading staff as part of its effort to comply with the law.

Non-bank financial institutions that the council designates for supervision by the Fed would be subject to the government's new powers to seize and liquidate failing financial giants to prevent chaos in the financial system.

The panel hopes to issue a proposed rule for comment on the criteria and process for designating non-bank firms by the end of the year, allowing a vote on a final proposal by the end of March.

(Reporting by Dave Clarke, Additional reporting by Steve Eder, Editing by Tim Dobbyn)
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Comments (3)
tgs10 wrote:
While I don’t like where the country is, I have a long enough memory to know how we got here and who is responsible. Just to make it clear, it was the oil barons and war profiteers of the previous Republican administrations that looted this countries treasury. It’s more than unfortunate, just plain sad, certainly disgusting, that such a large portion of the population have short memories and are so very ignorant.
It is axiomatic that in the absence of oversight there will be transgressions. It is the role of government to prevent transgressions. So, where are the conservatives coming from when they have a message of”…taking power from the federal government and bringing it back home to the people,”??? Who do they think “the people” are?
The conservative mantra. “We avoid what we do not wish to see; we are deaf to what we do not wish to hear; we ignore what we do not wish to know. We are masters of self-deception, of manipulating our perceptions.” (The Winds of Dune)

Oct 01, 2010 7:51am EDT  --  Report as abuse
McBob08 wrote:
Sometimes, you have to wonder if it’s worth bringing in sensible financial reform, because the next time the Republicans trick the public into voting them in, they’re just going to roll back those reforms so their rich elite masters can go back to making immoral amounts of profits, at the common American’s expense.

Wall Street is just a device designed to funnel money from the middle class to the rich minority; the sooner people realize that, the sooner Wall Street can be brought down and a sensible, regulated system of trading can be brought in to replace it. Until then, there are going to be more and more market “crashes”, leading to unnecessary recessions and unemployment.

Oct 01, 2010 7:31pm EDT  --  Report as abuse
midnightmadness wrote:
As I see it the whole financial meltdown over the last few years was not completely caused by these big financial companies that were required by law to make low income home loans, but by businesses that pushed for keeping employee wages low by sending lobbyist to Washington to assault minimum wage laws over a thirteen year period. With gas going from under a dollar a gallon in 1999 jumping to over four dollars a gallon, and the general economy becoming more expensive year after year, so when wages did not keep up with the economy people started defaulting on their mortgages. This is a problem that many business participated in that caused the economic downturn, and I do not feel sorry for any of them when they get regulated. When they finally come to terms with the idea that you have to provide jobs that support people, and that is the only way that our Democratic society will survive. We cannot have one segment of society doing well while the rest of society is failing, because that is a recipe for a failing society. We are Americans that have to stick together, and when we have a system that favors some, and hands the rest very little. We cannot afford the infighting that can rip a country apart, because we cannot count on the rest of the world to bail us out if we get into trouble like we often do for them. America will sink or swim, and the rich can drown just like the poor, but until the rich care about the poor they should not count on sympathy from me.

Oct 01, 2010 8:52pm EDT  --  Report as abuse
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