WASHINGTON May 19 A top U.S. Treasury official said Monday she is surprised how hard the asset management industry has lobbied against efforts by regulators to explore where the sector poses systemic risks.
"I have been a little bit surprised because I think it is a bit of an over reaction to certainly the public statements that we made," said Under Secretary for Domestic Finance Mary Miller, in a briefing with reporters.
Miller's comments are intended to set the tone for a widely-anticipated public meeting later on Monday that will explore the activities and potential risks in the asset management industry. The meeting will feature regulators, industry executives and academics.
The meeting is being held by the Financial Stability Oversight Council (FSOC), a panel of regulators chaired by Treasury Secretary Jack Lew and comprised of the heads of the top U.S. regulators, including the Federal Reserve and the Securities and Exchange Commission.
The FSOC is tasked with surveying the landscape for potential systemic risks. The 2010 Dodd-Frank law empowered it with tools to address emerging concerns.
It can flag potential problems through published reports, invoke a "name and shame" power to pressure other regulators to write rules or designate large firms as "systemic."
The latter tool is the most feared by the industry, because the designation as a "systemically important financial institution" imposes tougher rules and oversight by the Fed.
The FSOC is currently said to be weighing whether two large asset managers - Blackrock and Fidelity - should face designation.
The industry's lobbying against FSOC kicked into high gear last September, after the FSOC's research arm released a study which found that certain activities of asset managers such as the use of leverage and "herding" behaviors could fuel broad systemic risks.
The industry fears the study could lay the foundation for future designations, a concern the Treasury Department has said is unfounded.
The SEC, the primary regulator for asset managers, had concerns about the report and issued it for public comment on its website - an act that has since unleashed a fury from the industry, Capitol Hill and even some of the SEC's own commissioners.
Miller, who is heavily engaged in the FSOC's activities, said she hopes Monday's meeting will help clear the air and set the record straight about what the council is doing.
"I hope today is an opportunity to clear up a little bit of that misunderstanding," she said, noting it is "natural" for an industry to "bristle" a little if people are challenging its safety and soundness or asking tough questions.
She emphasized that there is "no predetermined outcome" for what steps the FSOC may take, if any.
That means that designation is an option on the table. However, she said, it also means that at the end of the day, the FSOC could "do nothing." (Reporting by Sarah N. Lynch; editing by Andrew Hay)