CORRECTED-Lawmaker questions NY Fed role in U.S. regulatory risk panel

Wed Jul 9, 2014 4:40pm EDT

(Corrects duplicate reference to spokeswoman for Treasury, who also handles media inquiries for FSOC)

By Sarah N. Lynch

WASHINGTON, July 9 (Reuters) - A U.S. congressman is questioning whether the New York Federal Reserve bank is exerting undue influence during closed-door meetings of an oversight council tasked with identifying risks posed by large financial firms.

In a letter to New York Fed President William Dudley on Wednesday, New Jersey Republican Rep. Scott Garrett demanded the bank hand over all documents and research reports that it has provided to the Financial Stability Oversight Council concerning the process of declaring that a firm poses a systemic risk.

The council of regulators created by the 2010 Dodd-Frank Wall Street reform law is tasked with policing for emerging systemic market risks.

The FSOC is chaired by Treasury Secretary Jack Lew, and comprised of the heads of each major U.S. financial regulator, including Federal Reserve Chair Janet Yellen and Securities and Exchange Commission Chair Mary Jo White.

The council can to vote to designate large financial firms as "systemic" - a tag that imposes more regulations and oversight by the Fed.

FSOC has declared as systemic GE Capital, a unit of General Electric, Prudential Financial and American International Group, and is now said to be closely scrutinizing the activities of large asset managers.

Although the New York Fed has been tapped as the designated regulator for insurer AIG, it is the chair of the Federal Reserve, and not the head of the New York bank, that is a member of the FSOC by law.

Republican lawmakers and some SEC commissioners have accused the FSOC of being too secretive in its decision-making and restrictive about who can attend closed-door meetings.

FSOC members are allowed to bring one staffer to closed-door meetings but they can bring more if they want to.

Garrett and SEC Republican Commissioner Mike Piwowar, neither of whom are considered FSOC members under law, have requested to attend closed FSOC meetings and were rejected.

Critics have pounced on the New York Fed because FSOC closed-door minute meetings show that Dudley has been allowed to participate in some private FSOC sessions. While he takes part in closed-door meetings, Dudley does not get a vote on the panel.

At times, meeting minutes have shown the Fed has had three representatives at the table, between the chair, Fed Governor Daniel Tarullo and Dudley.

"I have repeatedly expressed my concerns regarding FSOC's lack of transparency and due process in the ... designation process," Garrett wrote. "I am troubled that a non-member of FSOC may be significantly influencing designation decisions."

Garrett has given the New York Fed until July 25 to respond.

He also previously introduced legislation that would permit certain lawmakers and other regulators, such as SEC commissioners, to attend private FSOC meetings.

Spokeswomen for the New York Fed and the U.S. Treasury Department declined to comment. (Reporting by Sarah N. Lynch; Editing by Phil Berlowitz)