Although the FSOC has not made public any standards for how it determines whether a financial firm should be designated as a SIFI, the IAIS methodology provides compelling evidence that MetLife should not have been designated. Nevertheless, the MetLife designation was foreordained, because the FSOC appears to be following the directions of the FSB rather than making its own independent decisions.
The Financial Stability Oversight Council announced last week that it had preliminarily designated MetLife as a systemically important financial institution. Yet MetLife's designation was a foregone conclusion since the FSOC would not overturn a decision the Financial Stability Board, the Treasury and the Fed had already approved.
Four years after it took effect, Dodd-Frank's pernicious effects have shown that the law's critics were, if anything, too kind. Dodd-Frank has already overwhelmed the regulatory system, stifled the financial industry and impaired economic growth.
Resident Scholar Paul Kupiec, Resident Fellow Alex Pollock, and Arthur F. Burns Fellow in Financial Policy Studies Peter Wallison speak on a panel for an American Enterprise Institute conference call about the four year anniversary of the Dodd-Frank Act.
The notorious Dodd-Frank Act set up the Financial Stability Oversight Council (FSOC), a committee of regulators, and tasked it with identifying and preventing the ill-defined threat of systemic risk. Join our keynote speakers and expert panelists as they address the fundamental problems created by these political constructs.
Complaints about the FSOC arise because this agency has the extraordinary power to designate financial firms as systemically important financial institutions and there is very little evidence available anywhere that it has the ability or desire to use that power other than arbitrarily. Indeed, all the evidence is to the contrary.
The narrative that came out of the financial crisis was that it could have been prevented by better regulation. That misreading of the facts is why we are again on our way to a mortgage financing system that will one day bring on another financial crisis.
Basel I, II and III were developed by bank regulators, approved by an international agreement among bank regulators, and subsequently applied to the US banking industry. In this testimony, I discuss reasons why congressional abstention from this process was not a good idea.