(Bloomberg News) A team of regulators charged with preventing another financial crisis is fending off criticism it's moving too slowly to identify the firms whose failure could pose a threat to the economy.
The year-old Financial Stability Oversight Council planned to start designating systemically important non-bank financial companies, such as insurers, as early as the middle of this year. The council met today without setting the criteria it will use to decide which firms could threaten to bring down the financial system, as American International Group Inc. almost did in 2008.
The delays make it harder for financial firms to plan, fueling complaints that the industry is being hamstrung by regulatory uncertainty. Companies that could be deemed systemically important may have to wait several months to find out if they will need to raise capital or reduce leverage to comply with the council's findings.
"Industries need to know what their cost of capital will be," said Douglas Landy, a partner at Allen & Overy LLP, who once worked at the Federal Reserve Bank of New York. "Will they be regulated? You can't have it be a guessing game."
Extra Scrutiny
The council, known as FSOC, completed a rule today determining when derivatives clearinghouses require extra scrutiny because of their importance to the financial system. It also released a study evaluating treatment of secured creditors when banks are shut down.
"We have an obligation together to do the most careful, best job we can to make sure we put in place reforms that are going to endure for generations and leave us with a more resilient, more stable system," Treasury Secretary Timothy F. Geithner, the council's chairman, said at today's meeting.
The FSOC, which also includes Federal Reserve Chairman Ben S. Bernanke and the chairmen of the Securities and Exchange Commission, Federal Deposit Insurance Corp. and Commodity Futures Trading Commission, was created by the Dodd-Frank financial overhaul law signed by President Barack Obama on July 21, 2010.
"After one year, it's already clear that the Dodd-Frank act is reshaping the regulatory landscape -- filling gaps, reducing systemic risk and helping to restore confidence in the financial system," SEC Chairman Mary Schapiro said at the FSOC meeting.
JPMorgan, Citigroup