The Financial Stability Oversight Council held its first formal meeting today, with members pledging to work together as they carry out their duty to monitor against risks to the financial system and prevent another crisis.
In less than 25 minutes, the 11-member council approved its organization rule, a transparency policy, and released a roadmap on all the studies and rules it must implement under the Dodd-Frank financial regulatory overhaul law. It also put two of its biggest issues out for public comment.
"We're going to try very hard to make sure that this huge complicated burden of rule-writing that is ahead of us is done carefully but quickly," said Treasury Secretary Timothy Geithner, council chairman. The group has unprecedented power, including the ability to take over and break up firms whose potential collapse could roil the economy.
The council sought comment on what criteria should be used to place large nonbanks such as insurance carriers, hedge funds, and other firms under its supervision. Such a designation will impose burdens of greater examination and capital requirements, similar to what banks have to meet. Many entities are lobbying to avoid being placed upon the list. The notice lays out 15 questions regarding the rulemaking.
The other notice was for restrictions on bank proprietary trading and their investment in private funds, more commonly known as the Volcker Rule. The council has six months to complete a study on Volcker Rule implementation, then another nine months to issue rules. Some Wall Street firms have already begun to spin off their proprietary trading desk to affiliates and get out of private funds.
The council met in closed session before opening its public meeting in the Treasury's Cash room. "We had a very productive first meeting. There is a clear commitment around the table to make the Financial Stability Council a working and effective mechanism for monitoring systemic risk and detecting gasp and emerging risks to the system," said Federal Reserve Chairman Ben Bernanke.