April 14, 2011
Good afternoon Chairman Neugebauer, Ranking Member Capuano and members of the Subcommittee. I thank you for inviting me to today’s hearing on the Financial Stability Oversight Council (FSOC). I am pleased to testify alongside my fellow regulators.
Before I begin, I’d like to thank the hardworking staff of the CFTC for their continued efforts to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act and to support the mission of the FSOC.
The Financial Stability Oversight Council
In 2008, the financial system failed, and the regulatory system failed. As a result, a lot of Americans are still suffering. The crisis left them with an uncertain future. Many now own homes that are worth less than their mortgages. Many are still seeking employment.
As one response to that crisis, the Dodd-Frank Act established the FSOC to ensure protections for the American public. The Council is an opportunity for regulators – now and in the future – to ensure that the financial system works better for all Americans. The financial system should be a place where investors and savers can get a return on their money. It should provide transparent and efficient markets where borrowers and people with good ideas and business plans can raise needed capital.
The financial system also should allow people who want to hedge their risk to do so without concentrating risk in the hands of only a few financial firms. One of the challenges for the Council and for the American public is that like so many other industries, the financial industry has gotten very concentrated around a small number of very large firms. As it is unlikely that we could ever ensure that no financial institution will fail – because surely, some will in the future – we must do our utmost to ensure that when those challenges arise, the taxpayers are not forced to stand behind those institutions and that these institutions are free to fail.
There are important decisions that the Council will make, such as determinations about systemically important nonbank financial companies and systemically important financial market utilities and clearinghouses, resolving disputes between agencies and completing important studies as dictated by the Dodd-Frank Act. Though these specific decisions are important, to me it is essential that the Council make sure that the American public doesn’t bear the risk of the financial system and that the system works for the American public, for investors, for small businesses, for retirees and for homeowners.
The Council’s eight current voting members have coordinated closely. Treasury’s leadership has been invaluable. To support the FSOC, the CFTC is providing both data and expertise relating to a variety of systemic risks, how those risks can spread through the financial system and the economy and potential ways to mitigate those risks. We also have had the opportunity to coordinate with Treasury and the Council on each of the studies and proposed rules issued by the FSOC.
I will spend my time this morning discussing a number of matters that have been on the FSOC’s agenda. In particular, I will focus on the FSOC’s work thus far on its authority to designate financial market utilities, including clearinghouses, as systemically important and on the Volcker Rule, as the CFTC has additional responsibilities in those areas. I also will touch on the FSOC’s concentration limits study and supervision of certain nonbank financial companies.