FDIC Head Favors Interagency Panel to Oversee Systemic Risk

April 24, 2009

The head of the U.S. Federal Deposit Insurance Corp said Friday that she favors a council of regulators over one entity to oversee systemic risk in the financial system.

“If there was a (interagency) council for systemic risk, that would be nice and it would be good to have the FDIC on that council,” FDIC Chairman Sheila Bair told the Reuters Global Financial Regulation Summit in Washington, D.C.

Congress is trying to repair the U.S. regulatory structure after the government used billions of dollars in taxpayer funds to rescue firms like insurer American International Group that posed a risk to the wider economy.

Some policymakers have been pushing for a single entity to monitor risk in the financial system and want the Federal Reserve to assume those responsibilities.

The Property Casualty Insurers Association of America (PCI), an insurance company trade association, has proposed a framework for monitoring, limiting, and addressing systemic risk. PCI’s proposal includes a single federal overseer with the institutional expertise and independence to monitor systemic risk, without creating a massive new regulatory system.

But Bair said she prefers the idea of a council of regulators and said such a body should have real teeth and not just meet and give advice. “You absolutely need to give them power to write rules,” she said.

Currently, an interagency panel called the President’s Working Group on Financial Markets is in operation to provide advice and recommendations on financial issues.

The Working Group, chaired by the U.S. Treasury Secretary, includes other regulatory chiefs such as the chairmen of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission.

Bair said agencies in the President’s Working Group could perform the groundwork for the systemic risk regulator, but said the council needed to be empowered to collect information and write rules.

Other policymakers, such as the chairman of the SEC, have expressed concern that the creation of a systemic risk regulator could compromise their ability to protect investors.

What is equally if not more important, she said, is that there needs to be a government entity that can resolve nonbank financial institutions similar to the FDIC’s current authority to resolve commercial banks.

This should be separate from an over-arching authority to look across the system as a whole, she added.

For the Reuters summit blog visit: http://blogs.reuters.com/summits/.

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