By Huw Jones
LONDON Aug 27 The United States could improve
how it spots and prevents risks in the financial system from
turning into destabilising crises, a global regulatory task
force said on Tuesday.
The Financial Stability Board (FSB) said the world's top
insurance market could also streamline supervision of the sector
by centralising powers currently held at state level.
The FSB coordinates financial rules for the world's top 20
economies (G20) and will update leaders next month on progress
in making financial systems safer and less likely to need
taxpayer bailouts for banks again in future crises.
The watchdog said in its review of certain new U.S. rules
that the United States has a complex and fragmented supervisory
structure with many state and federal regulators.
But the new U.S. Financial Stability Oversight Council
(FSOC), set up to spot broader risks regulators across the world
missed ahead of the 2007-09 financial crisis, "represents a
reasonable approach" to coordinated oversight, the FSB said.
FSOC, like the European Systemic Risk Board and the
Financial Policy Committee in Britain, are a new breed of
so-called "macroprudential" watchdogs tasked with sniffing out
housing bubbles and other risks before they get out of control.
But FSOC's broad membership might affect its ability to act
quickly and more clarity is needed on how it operates so that it
becomes "greater than the sum of its parts", the FSB said.
"While the risks or threats to financial stability are
already identified in FSOC annual reports, those risks are not
analysed in detail and are not prioritised in terms of their
significance or their immediacy," it added.
The FSB also has concerns over how U.S. insurers are
supervised by a "multiplicity of state regulations" and that
reforms such as setting up the Federal Insurance Office, don't
go far enough as most powers are still held at state level.
"The U.S. authorities should carefully consider and provide
recommendations to Congress as to whether migration towards a
more federal and streamlined structure may be a more effective
means of achieving greater regulatory uniformity," it added.
Checks are also needed to see if insurers hold enough
capital to back their life insurance products, the FSB said.
The U.S system for capitalising insurers made it difficult
for investors to compare risks across the sector or with
international rivals, the review, chaired by Andreas Dombret of
the Bundesbank, added.
A U.S. Treasury spokeswoman said that as a member of the
FSB, it welcomed the review.
"We agree with the findings that the establishment of the
Financial Stability Oversight Council, the Office of Financial
Research and Federal Insurance Office represent important steps
to enhance stability of the financial system," she said.
The review said the United States has made "substantial"
progress in strengthening oversight of systemically important
financial market infrastructure such as clearing houses.
All G20 members are committed to having their financial
systems reviewed regularly by their peers.