* Lawmakers say council hides criteria for systemic firms
* Insurers, hedge funds anxious for answers
* Fed proposal on criteria scant on details
By Christopher Doering and Rachelle Younglai
WASHINGTON, April 14 The U.S. risk council is hiding documents and needs to be more transparent in how it chooses which insurers and other major non-bank financial firms pose a risk to the financial system, lawmakers said on Thursday.
Among the key decisions the council must make is determining whether certain non-bank financial entities, such as insurance companies, hedge funds and mutual funds, pose a risk to the country's financial stability.
Firms labeled "systemically important" would be forced to abide by costly new regulations, which has raised concerns among lawmakers and scared large swaths of the financial sector.
Randy Neugebauer, the head of a House Financial Services subcommittee, said that, while the council has committed to meeting openly and being transparent, "documents reviewed by my staff clearly demonstrate that the council has kept hidden from the public view the criteria for formulating systemically important designations."
House Financial Services Committee Chairman Spencer Bachus said there is evidence the council is "using additional standards" to determine who is systemically important. He encouraged the panel to release what "metrics are being used to classify firms" in addition to what was given in Dodd-Frank.
The Dodd-Frank legislation set up the council of regulators to help avoid a repeat of the 2007-2009 crisis when American taxpayers were forced to prop up companies such as insurer American International Group Inc (AIG.N) that were at risk of destabilizing the financial system.
The Federal Reserve released in February a vague proposal on how the United States would pick out these "systemic" firms, including a two-year test to determine if a firm's predominant business is financial. [ID:nN08291091]
But the proposal leaves insurers and hedge funds guessing if they will fall under the stricter regulatory regime.
BlackRock Inc (BLK.N), the world's biggest money manager, visited the Fed in November and told staff asset management companies are not that interconnected to the rest of the financial markets.
Firms falling into a gray area are getting anxious for answers. Earlier this year, representatives from hedge funds Paulson & Co and D.E. Shaw & Co met the Fed to try to get clarity on how firms would be picked as "systemic," according to a posting on the Fed's website detailing meetings with the public on regulatory reform.
Michael Capuano, a Democratic Representative at a hearing, said the United States is in "a whole new world" of regulation and some industries have never been regulated before.
"When you come up with these regulations give them all an opportunity to be heard again as to specifically how that might impact industries you have never regulated," said Capuano. "I wouldn't expect you to be experts in those areas. Some day, but not yet."
The council is chaired by Treasury Secretary Timothy Geithner and includes Fed Chairman Ben Bernanke, as well as the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Jeffrey Goldstein, a Treasury under secretary, told lawmakers the council was not close to designating firms as "systemically important." (Reporting by Christopher Doering and Rachelle Younglai)