Jan. 5, 2016
U.S. Chamber Attacks Council Aimed at Keeping ‘Too Big’ Institutions From Failing
Public Citizen Report Shows That Chamber Is Trying to Help Major Contributor Avoid Federal Reserve Oversight
WASHINGTON, D.C. – The U.S. Chamber of Commerce has strongly opposed centralized oversight of “nonbank” financial companies that precipitated the 2008 financial crisis and has fought to help a major contributor avoid heightened standards, according to a new report from Public Citizen’s U.S. Chamber Watch.
The new report, “Undermining FSOC,” examines the Chamber’s advocacy regarding the Financial Stability Oversight Council (FSOC), which consists of financial regulators and was created as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to identify risks to the financial stability of the United States.
Among the council’s duties is to identify financial services firms that are not banks but have the potential to destabilize the economy if they suffer distress. The law permitted the FSOC to designate nonbanks for supervision by the Federal Reserve, which regulates bank holding companies, and to recommend that such institutions be subject to higher fiduciary standards.
The distress of nonbank financial companies, such as Lehman Brothers and American International Group, plunged the nation’s financial system into crisis in 2008 and prompted a massive federal bailout to avert a domino effect of failed institutions.
According to the report, the Chamber supported the creation of a systemic risk council but opposed giving the council purview over nonbanks. After losing that policy battle, the Chamber turned its attention to frustrating the FSOC’s efforts to create rules to designate nonbanks for Federal Reserve oversight. The report critiques arguments against the FSOC’s rules that the Chamber submitted during the rulemaking process.
“The Chamber raises legal quibbles in high volume but is silent on addressing the self-evident problems the systemic risk council was created to solve,” said Bartlett Naylor, financial policy advocate for Public Citizen.
Later, the Chamber joined a legal fight waged by insurance company MetLife to reverse the FSOC’s 2014 decision to designate it for Federal Reserve supervision. The Chamber received more than $1.9 million in contributions from MetLife from 2011 to 2014, according to MetLife’s voluntary disclosures.
“The Chamber’s main criticism on the MetLife designation rests on the false premise that the FSOC can recommend prudential regulation only for firms it considers in peril,” explained report author Don Marlais, a consultant. “In fact, the FSOC must designate firms for special oversight if their failure would cause major problems, regardless of whether they appear in danger.”
This analysis is the third in a series of three reports on the U.S. Chamber of Commerce’s financial policy agenda authored by Marlais and issued over the past few weeks by Public Citizen’s U.S. Chamber Watch.