(Adds comments from industry officials on the panel discussion)
By Sarah N. Lynch
WASHINGTON, May 19 (Reuters) - A top U.S. Treasury official said on 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 overreaction to certainly the public statements that we made,” said Under Secretary for Domestic Finance Mary Miller, in a briefing with reporters.
Miller’s comments set the tone on Monday for a public conference that explored the activities and potential risks in the asset management industry.
The meeting was held by the Financial Stability Oversight Council (FSOC), a panel of regulators chaired by Treasury Secretary Jack Lew and made up of heads of the top U.S. regulators, including the Federal Reserve and the Securities and Exchange Commission.
The FSOC surveys 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.
Executives from BlackRock and Fidelity were on hand to speak on the panel, along with officials from other firms such as PIMCO and Citadel.
Barbara Novick, a vice chair at BlackRock, told the packed room that she believes there has been a misplaced focus on the size of funds and firms, even though they act as agents for clients.
“Asset managers come in many shapes and sizes,” Novick said. “The size of an individual manager or an individual fund is actually one of the least relevant factors in looking at risk.”
The industry’s lobbying against FSOC kicked into high gear last September, after the FSOC’s research arm released a study which found 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.
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 and Meredith Mazzilli)