Former Federal Reserve Board Governor and PCAOB Chairman Mark Olson spoke during the general session this morning about the proposed legislation for financial services regulatory reform, the main point of which is to ensure systemic stability for the financial system. He made an interesting point, saying that in the US “we have a limited tolerance for financial volatility” and that regulatory reform aims to dampen that volatility.
Regarding “too big to fail,” Olson said that he agreed that we should focus legislation to manage this risk to taxpayers but that this “is a very complex task” that shouldn’t be understimated. He acknowledged that regulators and institutions agree that the soundness of the financial system requires better understanding the systemic risk posed by individual institutions, but the question is the best way to address this problem. He did note that the Dodd bill attempts to clarify the Fed’s role in “unusual and exigent circumstances” under section 13-3, which should provide more clarity as to what sort of consent is required for special action by the Fed, but, in the end, he said that the bill doesn’t address “too big to fail.”
He also said that the “tone and approach” of different regulatory agencies varies and that the bill will attempt to clarify responsibilities, although there are still certain areas of the bill which would lead to an overlap in responsibilities.
He noted that the Dodd bill will require risk committees that will require “timely and comprehensive information”, and he perceptively commented that the effectiveness of these committees will be dependent upon the quality of this information.
During the Q&A period, one member of the session asked about the so-called “shadow banking system” or financial services outside the regulatory scheme. Olson said that the consumer protection agency is trying to address this, and noted that the FTC had not been as aggressive as it should have been.
Overall, while Olson said that we would most likely get a bill passed this year, his comments did not make it clear that we would be getting the right one, or that it would truly address the complexities of managing risk in our financial system.
Tags: ABA Risk Management Forum