Investor Relations 101

[Tina]

Issue Date: IR Alert - July 16, 2009

Investors and Regulators Attack White House Proposal: Coalition Rejects Move to Further Empower Federal Reserve in Restructuring Bid

A large group of investors with $3 trillion in securities assets and former top regulators on Wednesday released a report attacking the White House's proposal to give the Federal Reserve more power as part of a massive regulatory restructuring under consideration on Capitol Hill. The group, made up of former Securities and Exchange Commission chairmen William Donaldson and Arthur Levitt, former Commodity Futures Trading Commission chairwoman Brooksley Born along with key investors have put out a 46-page-report taking issue with the administration's proposal to empower the Fed as a systemic risk regulator, MarketWatch reports.

The investor group, known as the Investor Working Group, is calling on Congress to create a so called Systemic Risk Oversight Board, which would collect and analyze financial institutions capital limits, practices and financial products. It would also make recommendations to regulators such as the Fed about steps they could take to reduce the risks, reports MarketWatch writer Ronald D. Orol.

The Obama Administration proposal includes reform to the Federal Reserve and other bank regulators. It also seeks to have the Office of Thrift Supervision combined into the Office of Comptroller of the Currency as well as creating a Consumer Financial Protection Agency, which would examine mortgage and credit card products sold to individuals. The proposal is under consideration by key committees in Congress, the House Financial Services Committee and the Senate Banking Committee, which are working on regulatory reform legislation that is expected to be completed by the end of the year.

The group argues that the SROB represents a middle ground between the White House proposal to empower the Fed to examine systemic risk and a council of regulators, made up of agency heads, which some lawmakers and regulators are advocating, that could have the power to set capital standards and make decisions about whether to bailout large financial institutions.

The Obama proposal seeks to create a council of regulators, but it doesn't give it the power to make recommendations, as the IWG is recommending, or set capital standards, as some lawmakers are advocating.

The White House proposal seeks to set up an eight-member financial services oversight council, which will be chaired by the Treasury Department and include the heads of bank and securities regulators. Their council, which would maintain a permanent staff at the Treasury, would seek to coordinate data collection and coordination among bank regulators so that the Fed is aware of any emerging risks.

The investor group argues against giving a council of regulators too much power because they would have "blurred lines of authority" and ultimately "no one would be in charge or accountable." However they are also opposed to giving the Fed too much power because they argue it has competing responsibilities.

"The Fed has other potentially competing responsibilities — from guiding monetary policy to managing the vast U.S. payments system," the report said. "Its credibility has been tarnished by the easy credit policies it pursued and the lax regulatory oversight that let institutions ratchet higher their balance sheet leverage and amass huge concentrations of risky, complex securitized products."