SEC Chair Backs Regulating Big Businesses

Economic Chiefs Eye "Systemic Risk Council" To Regulate Companies Whose Failure Would Hurt Economy

(AP)  The head of the Securities and Exchange Commission said Friday she favors a new proposal for federal regulators sharing oversight of companies that pose financial risks to the U.S. economy.

SEC Chairman Mary Schapiro said she's "inclined toward" the idea floated this week by the head of the Federal Deposit Insurance Corp. for a new "systemic risk council" to monitor large institutions against financial threats. The council would include the Treasury Department, Federal Reserve, FDIC and SEC, according to the proposal by FDIC Chairman Sheila Bair.

Congress and the Obama administration are working to craft an overhaul of U.S. financial rules to prevent a repeat of the crisis that plunged markets worldwide into distress.

Speaking to the Investment Company Institute, the mutual fund industry's biggest trade group, Schapiro said she is concerned about an "excessive concentration of power" over financial risk in a single agency.

Some key lawmakers have proposed that the Fed alone assume the role of systemic regulator.

But Sen. Christopher Dodd, chairman of the Senate Banking Committee, said this week he is "more attracted to the council idea" than having a single regulator play that role.

Policymakers want to replace the "too big to fail" model used by the government as it rushed in to rescue huge financial institutions caught up in the global crisis last fall.

Regulators are calling for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system.

At the same time, Schapiro on Friday reaffirmed her position that the SEC must play a key role as an independent watchdog protecting investors in the new system of financial regulation.

"There is a need for a regulator entrusted with responsibility for our capital markets," she said. For the SEC, "independence is indispensable."

Staking out the SEC's position in the sweeping overhaul of the financial rule book that Congress and the administration have begun, Schapiro said it "would be a disaster" for that supervision over the markets to be split among various agencies.

Schapiro, an Obama appointee who became head of the SEC in January, stressed to the audience of mutual fund executives how hard Americans have been hit by the worst economic crisis in 70 years.

Around 92 million Americans entrust $9 trillion of their savings to mutual funds, and retirement savings plans were devastated by the stock market slide beginning last fall. The market has been on an upward swing since early March, rising more than 25 percent from 12-year lows, but the climb back remains steep and investors are rattled.

"The SEC is acting aggressively" to become a stronger and more agile regulator to help restore investor confidence, Schapiro said. The agency is revamping and strengthening its enforcement program, she said, and already this year has stepped up the number of actions taken against investment fund managers and others alleged to have violated securities laws.

On Tuesday, the SEC filed civil fraud charges against Reserve Management Co. Inc. and its two top executives, alleging they withheld key facts from investors when its $60 billion money-market fund "broke the buck" last fall after Lehman Brothers filed for bankruptcy protection. The Primary Fund, which had invested $785 million in Lehman's debt, saw the value of its assets fall to 97 cents per investor dollar put in — below the dollar-for-dollar level needed to fully repay investors.

New York-based Reserve Management said it "intends to defend itself vigorously" against the SEC's allegations.

About $46 billion, or about 90 percent of fund assets, have been returned to investors, the company has said. Schapiro said Friday the SEC is working to recover more money for them.

In the wake of the episode, the SEC is considering how regulation of money-market mutual funds could be tightened to better protect investors, she said.

The Investment Company Institute has proposed its own tightened rules for money funds. They include toughened requirements to screen money fund investments for safety, and to ensure that fund companies can return cash on demand to investors — even if redemption orders come in a panic-induced rush. The industry is rejecting private insurance to protect investors against losses, and opposes easing current requirements that money funds hold at least $1 in assets for each investor dollar put in.

Schapiro called the trade group's proposals "helpful," but has said the SEC's eventual rule changes are likely to go further.

[ibsteve2u]

I, too, am "more attracted to the council idea". There is no ruling out the possibility that the Grand Old Party will come up with a Grand New Lie and sucker the American people again.

There is safety in numbers - the Republicans would have to work much harder, at least, to corrupt an entire council, whereas a single appointee leaves America vulnerable to a U.S. Chamber of Commerce-approved variant of [name that Bush Administration official].

[brianbwb-2009]

"Regulators are calling for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system. "

We have anti monopoly laws on the books to prevent this, we also have rico, and other anti collusionary laws, the problem is that the enforcement bodies have either been financially gutted, bribed off, or simply ignored in this post Reagan trickle down period.

I say enforce the law, and include substantial fines and jail time, up to life imprisonment, and forfeiture of all assets, for violators. As has been done with recreational drug use, certain sentences should be mandatory, thus eliminating the opportunity for corrupt judges to make bribery money.

Whether among the businesses, or amongst the people charged to police them, it is time to treat them as they have wished, the lawyers love to speak of corporations having the rights of individual persons, OK, then also require the responsibilities and liabilities of individuals from them, commit a crime, pay the fine, and do some time.

[whitemale08]

BANKRUPTCY COURT = OVERSIGHT!!!!

PUT THESE BANKS AND THE ENTIRE FEDERAL RESERVE INTO RECEIVERSHIP!!!!

BANKRUPTCY = TRANSPARENCY, CONFIDENCE, NEW OPTIMISM, OPPORTUNITY!!!

GLASS-STEAGAL = BANKRUTPCY RE-ORGANIZATION AND CANCELATION OF ALL WORTHLESS DERIVATIVES AND CREDIT-DEFAULT SWAPS!

[whitemale08]

THE SAME CRIMINALS WHO LOOT THE JOINT ALWAYS PROPOSE 'OVERSIGHT' AFTER-THE-FACT!

CALL CONGRESS AND DEMAND THAT GOLDMAN SUCKS AND JP MORGAN GO IMMEDIATELY INTO RECEIVERSHIP AND BANKRUPTCY RE-ORGANIZATION!

THAT'S HOW CONDUCT 'OVERSIGHT'...YOU PUT THESE CLOWNS INTO BANKRUPTCY COURT!

HOW DARE THESE SAME BANKS COME OUT AND SAY "WE NEED OVERSIGHT" AFTER THEY LOOTED THE AMERICAN TAXPAYER?

PUT THESE DAMN BANKS INTO RECEIVERSHIP AND BANKRUPTCY RE-ORGNIZATION AND BREAK THE UP IMMEDIATELY!

ANTI-TRUST LAWS AND BANKRUPTCY IS TRANSPARENCY AND CONFIDENCE!

[lami987]

We have to break up all the companies that are too big to fail on top of the regulations.

[bobbyduck1]

Wasn't the SEC and the FTC set up to stop the continuous mergers of financial institutions that then permitted them to become too big to fail? If the regulators would have turned down the requests of the big banks that consistently bought out and then destroyed local banks the world would not be in this trouble. Government just needs to learn to say NO to these constant corporate and Wall Street requests for mergers that only help the money changers instead of society.
Posted by afmcalax at 8:26 AM : May 8, 2009

During the Reagan/Bush I and then the Bush II years, the largest changes to the financial landscape in history occurred in that many companies were allowed to become so large that they can't be controlled and individually could relly hurt the economy in many ways. Monopoly-prevention and anti-trust regulations and philosophies were kicked to the curb.

Now it's all of our turn to get kicked to the curb unless President Obama's administration can somehow reverse and correct this trend, over the screaming objections of the right wing that caused all of this in the first place. Their favourite corporate donors will cut them off if they do the right thing for the American people.

Fortunately, by 2010 we should have a 62/38 or even 63/37 split so they can actually become as irrelevant as they should be. Then some real Americans can fix the mess they made in a way that benefits all Americans rather than a few fatcats and their paid-for politicians!

[BeckieBest]

Wasn't the SEC and the FTC set up to stop the continuous mergers of financial institutions that then permitted them to become too big to fail? If the regulators would have turned down the requests of the big banks that consistently bought out and then destroyed local banks the world would not be in this trouble. Government just needs to learn to say NO to these constant corporate and Wall Street requests for mergers that only help the money changers instead of society.
Posted by afmcalax at 8:26 AM : May 8, 2009



Well said. No enterprise that grows to the size that if it failed would bring down the entire economy should be unregulated. Ideally, many of the mergers that create these mega companies should be prevented.

[afmcalax]

Wasn't the SEC and the FTC set up to stop the continuous mergers of financial institutions that then permitted them to become too big to fail? If the regulators would have turned down the requests of the big banks that consistently bought out and then destroyed local banks the world would not be in this trouble. Government just needs to learn to say NO to these constant corporate and Wall Street requests for mergers that only help the money changers instead of society.

[ubrew12]

Uh, wasn't the SEC set up to regulate ALL business? And especially banks?