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Senate Banking Committee Holds Hearing Regarding the Role of FSB (with Delta Strategy Group Summary) (with Lofchie Comment)

The Senate Committee on Banking, Housing and Urban Affairs held a hearing focusing on the role of the Financial Stability Board ("FSB") in the U.S. regulatory framework.

The following witnesses testified:

  • The Honorable Dirk Kempthorne, President and CEO, American Council of Life Insurers (view testimony);
  • Mr. Eugene Scalia, Partner, Gibson, Dunn, Crutcher (view testimony);
  • Mr. Paul Schott Stevens, President and CEO, Investment Company Institute (view testimony);
  • The Honorable Peter Wallison, Arthur F. Burns Fellow in Financial Policy Studies American Enterprise Institute (view testimony); and
  • Dr. Adam S. Posen, President, Peterson Institute for International Economics (view testimony).

Lofchie Comment: The debate over the FSB reflects different perspectives on power and authority. One question is whether U.S. legislators and regulators should be deferential to a global regulator. In this regard it is notable that Senator Warren describes the FSB as the "key to preventing another financial crisis." This is an atypical position, as U.S. legislators, in general, argue that national regulatory U.S. bodies should act more independently of supranational organizations. Others argue that the FSB is not controlling the Fed; rather, the Fed is controlling the FSB, presumably to create an "international voice" that will advance the Fed's position in the United States.

These differing views highlight the battle for authority between the banking (prudential) regulators and the capital markets regulators, in which the bank regulators assert the view that credit activities undertaken by non-banks are "shadow banking" that should presumably be regulated by banking regulators. Additionally, there seems likely to be an impending battle for control over insurance companies by the states (which currently regulate insurance companies) and the federal government (which has asserted control over those insurance holding companies that are deemed to be systemically significant, but perhaps with more federal control to follow).

Almost as interesting as the conflict over authority are the questions regarding competence; i.e., do the bank regulators understand the insurance business, and are they correct in approaching capital markets activities with the viewpoint that they should be subject to "prudential" (bank-like) regulation?

Tags

Individuals
Elizabeth A. Warren
Regulated Activities
Meetings
Body of Law
Banking Law
Jurisdiction
US - Federal
Organization
US Congress