Bair Says Systemic Risk Council Needed

The Chairman of the Federal Deposit Insurance Corp. sees a change is needed to oversee big institutions that may put the entire economy at risk.

Sheila Bair's comments came a day before the stress test results of the nation's 19 largest banks were to be made public. She testified before the Senate Banking Committee yesterday. Bair says new powers are needed to oversee these companies and proposes an authority could be formed by the top federal banking and investment regulators.

The "too big to fail" model used by the government rushed into place to rescue huge financial institutions caught up in the global crisis last fall needs to be replaced with a more system wide monitoring approach, Bair says.

"Our current system has clearly failed in many instances to manage risk properly and to provide stability," she states, "We're talking about a resolution and not a bailout."

Bair suggests a new authority be granted to the FDIC from Congress to take over and resolve bank holding companies like Citigroup Inc. or Bank of America Corp. even before the regulatory reform is complete. Currently, bank holding companies are regulated by the Federal Reserve. The FDIC now can only take over and resolve the subsidiaries of bank holding companies that hold federally insured deposits (FDIC insured deposits.)

Of the 19 banks that will have stress tests results released, none of them will be allowed to fold, regulators have already stated. Bair says "I think this will be a confidence-instilling announcement." Some banks will have to raise more capital. Bair admits some will say "we're being too tough, and other analysts will say we're not being tough enough"

Bair suggested the FDIC, the Treasury, Federal Reserve and the Securities and Exchange Commission could form the base of a new "systemic risk council" that would aim to monitor large institutions for the types of risk that set off the financial tsunami that hit markets and economies around the globe last fall. This council of regulators would be best equipped more than a single agency to hold oversight, write rules and set capital requirements and collect data on large institutions that pose a potential threat to the system.


About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.




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