October 22, 2008

In an unusual move for an industry association, SIFMA's president and CEO, Tim Ryan, yesterday asked Congress to set up a "stability regulator" that would take a global approach to regulatory reform.

"This regulator should have authority to use the information it gathers to determine which financial institutions actually are 'systemically important,' meaning institutions that would likely have serious adverse effects on economic conditions or the financial stability of other entities if they were allowed to fail as a result of a 'run on the bank' or other loss of short-term liquidity during a financial crisis," Ryan said. "We believe this is a relatively small number of financial institutions."

The new regulator might be able to set capital requirements for all types of financial institutions and their subsidiaries, Ryan said. It would also be authorized to take "prompt corrective action" toward systemically important financial institutions, similar to the resolution powers the FDIC has for insured depository institutions, "including the power to put the institution into conservatorship or receivership, and to create bridge institutions similar to bridge banks to facilitate an orderly disposition of a failed institution's assets and liabilities."

Ryan also asked Congress for an overall streamlining of financial services regulation, for instance by eliminating duplicate state and federal oversight, by consolidating the oversight of securities and futures, and by merging the Office of Thrift Supervision into the Office of the Comptroller of the Currency. He also advised against state-by-state regulation of derivatives, saying this "is not appropriate and could result in the business moving off shore, thereby creating more risk." He advocated the setting up of a central clearing facility for derivatives as "an effective and efficient way to address regulatory concerns."

You can read the full testimony here.