These Banking Watchdogs Are off the Leash and Can Now Make a Difference

Publication: The Independent- London

Author: Stephen Foley

06/09/2012 - Hell hath no fury like a regulator scorned. The public officials who lost their battles for a radical clampdown on risk taking by Wall Street while they were in government are banding together to raise hell now they are on the outside.


When Sheila Bair was the chairman of the Federal Deposit Insurance Corporation, as markets unravelled in 2008, she was the only official pushing for full-on nationalisation of the worst-hit banks, but while she harried managers at the institutions under her regulatory purview, she never succeeded in ousting Vikram Pandit as boss of Citigroup, as she wanted.

When Paul Volcker, the inflation-busting former chairman of the Federal Reserve under President Ronald Reagan, came back to government to advise Barack Obama, he found himself marginalised, and even the planned Volcker Rule named after him, which bans government-insured banks from speculating, is a shadow of the reform he really proposed.

And as for Brooksley Born, she was ousted from her job running the Commodity Futures Trading Commission by President Bill Clinton, when she committed the heresy of suggesting we really ought to regulate this vast and dangerous new market of interbank credit default swaps. If she had won that battle all those years ago, the letters AIG might still conjure up a safe little insurance business instead of memories of financial cataclysm.

These are just three of the big names at the Systemic Risk Council, a new, private volunteer group funded by the Pew Charitable Trusts and the CFA Institute and chaired by Ms Bair, which will act as a kind of shadow FSOC. If you don't know the acronym FSOC yet, you're not alone and that's what has got Ms Bair so angry.

The FSOC is the Financial Stability Oversight Council, comprised of all the US financial regulators, under the auspices of the Treasury, which is meant to watch out for systemic risks, act as an early-warning system and help coordinate action that can rein in dangerous activity on Wall Street before it starts to threaten the public. When financiers next invent a fancy new product designed to skirt capital rules, or a new legal entity, structured to sit outside regulation, as they surely will, the FSOC is the body on which we must rely.

Read the full article, These Banking Watchdogs Are off the Leash and Can Now Make a Difference, on The Independent's website.

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