Remarks, Financial Stability Oversight Council
Chairman Gary Gensler
January 18, 2011
Good afternoon. I thank Secretary Geithner for calling today’s meeting of the Financial Stability Oversight Council (FSOC). I also thank my fellow regulators and FSOC members for their coordination and consultation on the rule-writing process to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. Lastly, I want to thank the staffs of all the agencies – and particularly the Treasury staff – for all of their efforts in coordinating amongst eight agencies and also their willingness to take our comments on the studies and proposal being considered today.
Volcker Rule Study
I support releasing the Study & Recommendations on Prohibitions on Proprietary Trading & Certain Relationships with Hedge Funds & Private Equity Funds, also known as the Volcker Rule study. The study provides thoughtful recommendations to carry out Congress’s intent to separate proprietary trading from otherwise permitted activities of banking entities. The study also provides a basis upon which each of our agencies can move forward with the required rule-writing to carry out Congress’s mandate.
In particular, the study covers financial instruments both in the cash market and in the derivatives and swaps markets. This is significant, as any risk that a banking entity could take on in the cash markets also could be expressed through swaps and derivatives. The inclusion of both prevents regulatory arbitrage. In addition, the study indicates that the books of banking entities, including swap dealers, would not be precluded from the definition of a trading account regardless of whether those accounts held illiquid financial instruments, such as swaps, and regardless of whether those positions are short-term or long-term.
Concentration Limits Study
I support releasing the Study & Recommendations Regarding Concentration Limits on Large Financial Companies. The study is a crucial step in implementing the Congressional mandate that no financial company grow through either merger or acquisition if the resulting companies’ consolidated liabilities would exceed 10 percent of all the aggregate consolidated liabilities of all financial companies. These limits are designed to promote financial stability by preventing the liabilities of the financial sector from becoming too concentrated in any given financial entity. The 2008 financial crisis demonstrated the potential repercussions to the American public of concentration within our financial sector.
Proposed Rulemaking on Supervision of Certain Nonbank Financial Companies
I support the proposed rulemaking on Authority to Require Supervision of Certain Nonbank Financial Companies. The proposed rulemaking would fulfill Congress’s mandate by laying out a set of designation criteria that the Council would use to determine whether nonbank financial companies as systemically significant. Effective regulation of systemically important nonbank financial entities is essential to preventing the next AIG from threatening the financial system.
I again thank Secretary Geithner for calling today’s meeting, as well as my fellow FSOC members and agency staff for all of their work.