“Systemic Oversight Council?” That’s supposed to address the Too Big To Fail issue?
by Tom on October 23, 2009
in Market Musings
Bernanke says we need a systemic oversight council to monitor the risk that banks are taking.
A couple of questions:
- Do you think that creating a government oversight committee would prevent the type of problems that we have right now?
- Do you think that maybe if we went back to the way the old rules were that would work? You know, the rules where commercial banks (those who handle people’s deposits) can’t get involved in the things that investment banks (those who borrow 99.5% of the cost of an investment and ride the leverage roller coaster?) Yeah, those rules worked quite well from the 1940’s until recently when “we” decided that “it’s different this time” and that the market will always go up.
Do I agree that we can’t continue with the same old thing? Yes. Do I think this is the answer? Nope.
A massive systemic overhaul of the way banking is run and the size of the financial institutions is the only way that we’ll be able to prevent this from happening again.
Tom Vanderwell
Federal Reserve chairman Ben Bernanke called for the creation of a “systemic oversight council” to monitor and address risks inherent in the complex US financial system.“Because of the size, diversity, and complexity of our financial system, that task may exceed the capacity of any individual supervisor,” Bernanke said during a speech at the Federal Reserve Bank of Boston’s 54th Economic Conference.
The council could be responsible for monitoring risk exposures that emerge from both firms and markets, identifying regulatory gaps, organizing responses to emerging risks and highlighting systemically important firms. The council would report to Congress and the public on detected risks and the proper response, Bernanke said.
Not just the Federal Reserve but all financial supervisors and regulators should take account of threats to the broader financial system as part of their normal responsibilities, Bernanke said.
Bernanke cited the problem of financial institutions deemed “too big to fail.” He urged Congress to close the gap between large complex financial firms, which pose risks to the overall system without owning a bank, and their lack of comprehensive oversight.
“Large financial institutions manage their businesses in an integrated manner with little regard for the corporate or national boundaries that define the jurisdictions of functional supervisors in the United States and abroad,” Bernanke sad.
Technorati Tags: The Fed, Bernanke, Too Big To Fail
