A growing drumbeat of criticism over the federal government's attempts to prevent a financial crisis in the asset management industry by applying bank-like rules appears to be having little effect.
The Financial Stability Oversight Council “is marching along, making its designations,” said Hester Peirce, a senior research fellow at the Mercatus Center at George Mason University, Arlington, Va. “I don't see anything to suggest that it won't, un-less you get a more aggressive stand” from the asset management industry, said Ms. Peirce, who served on the staff of the Senate Committee on Banking, Housing and Urban Affairs during the financial crisis and passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
The Financial Stability Oversight Council was created by the Dodd-Frank Act and given broad authority to identify and monitor excessive risks to the U.S. financial system, and determine which firms are systemically important financial institutions.
An FSOC report issued in September by the Treasury Department's little-known Office of Financial Research was intended to help regulators on the multiagency council gauge the level of systemic risk in the $53 trillion money management industry, but the preliminary information and conclusions reached have asset managers worried that a little-understood FSOC process for considering systemic risk will lead to asset management firms being subjected to enhanced prudential standards and supervision by virtue of being labeled systemically important financial institutions.
“We have some fundamental questions about the purposes and potential uses of the report,” wrote Vanguard Group Chief Investment Officer Tim Buckley and principal John Hollyer, head of Vanguard's risk management group, in a Nov. 26 letter to the SEC, characterizing it as “incomplete and inaccurate in several respects.“
While they argue that any additional regulatory decisions should come from the SEC, they worry about why the OFR report was ordered. “We are deeply concerned that such a brief overview would or could be used by FSOC as a foundation for such a significant determination,” they wrote.