Powers must be given to a fully public body, and one that is able to benefit from the information and perspective of the routine regulators of the financial system (excerpt from Pres. Trumka’s testimony)

DATE: October 30, 2009

AFR: “Too Big To Fail” Legislation Needs To Be Improved

To Ensure We Avoid Another Financial Meltdown

Washington, DC – Americans for Financial Reform released the following statement following the House Financial Service Committee hearing on Systemic Risk Regulation:

Heather Booth, Director, Americans for Financial Reform: “Although progress was made in today’s Committee hearing, working with Chairman Frank to improve the bill, the current draft legislation on Systemic Risk Regulation has substantial problems in language and structure.The current bill fails to address the close ties between the Federal Reserve and the Big Banks that are at the heart of the problem.

As AFL-CIO President Trumka said today in his testimony to the House Financial Services Committee: “Americans for Financial Reform and the AFL-CIO strongly support the concepts in the Treasury Department White Paper that a systemic risk regulator must have the power to set capital requirements for all financial institutions that are large enough or connected enough to affect the stability of the financial system. We also strongly support the Treasury’s proposal to give the systemic risk regulator the power to place such an institution in a resolution process run by the FDIC. However, these powers must be given to a fully public body, and one that is able to benefit from the information and perspective of the routine regulators of the financial system.” (Trumka’s full testimony can be found here.)

We are encouraged that Chairman Frank committed today to work to improve this bill as it moves through committee.  We will be working with him to make sure that his stated intentions are achieved.  Specifically, we will work with the Chairman to ensure:

1. Resolution Authority means that when the government steps in, that any institution put into a resolution process will be broken up.
2. No authority for the Fed over consumer or investor protection.
3. Eliminate secrecy about who is systemically significant. The process needs transparency and accountability.

In addition, while the bill gives dramatic new powers to the Federal Reserve, a highly undemocratic institution, it fails to address its governance.  Systemic risk and governance of the Federal Reserve must be reformed together, if the Fed is to be the Systemic Risk Regulator.

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