The gift that people keep refusing

We are familiar with the concept of “the gift that keeps on giving.” Die-hard opponents of financial reform, who continue to regret that we adopted any significant legislative change last year to deal with reckless financial practices, have created what you might call “the gift that people keep on refusing.”

The gift is that of being designated as a “systemically important financial institution” by the Financial Stability Oversight Council, established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Such institutions will be subject to a greater degree of regulatory scrutiny and required to hold more capital. Republican critics argue that the designation would signal that a company is “too big to fail,” which would be a license to raise investment funds and deposits more cheaply and would provide a competitive advantage over other firms.

Insurance industry praises Financial Stability Oversight Council nominee

WASHINGTON—President Barack Obama’s nomination of S. Roy Woodall to fill a voting position on the Financial Stability Oversight Council is drawing considerable praise from insurance industry observers.

The industry had long been concerned that the slot for a voting member representing insurance had remained vacant long after all other positions on the council—which oversees regulation of financial services institutions—had been filled. Insurers feared that a council would subject them to additional regulation should it deem insurers to present a systemic risk to the economy.

Hedge funds are not ‘shadow banks’

We have been hearing a lot recently about the “shadow banking” sector. Senior bankers and lawmakers seem to have found a new bogeyman. The International Monetary Fund has called for enhanced oversight of “shadow banking activities”, while the G20 has instructed the Financial Stability Board to develop regulatory recommendations by the autumn.

Who will be covered by this new system of oversight? The term “shadow banking”, first coined in 2007, is usually meant to refer to a wide variety of non-bank financial institutions including money market funds, structured investment vehicles and insurance companies. The implication is that such organisations are engaging in bank-like activities out of the sight of regulators, creating unmonitored risks to the system.