The unstated rule among most government regulators is to provide as much information as possible using the most formal, colorless language as possible.
Bloomberg’s Matt Levine points us to a new speech from SEC governor Michael S. Piwowar that blows this dictum out of the water.
In remarks at the conservative AEI Institute, blasts the Financial Stability Oversight Council, a body created in the wake of the financial crisis to serve as an additional sentry over financial markets, for a lack of transparency and for overstepping its bounds.
This is despite the fact that SEC Chair Mary Jo White is one of FSOC’s voting members, along with Fed Chair Janet Yellen, Treasury Secretary Jack Lew and Timothy Massad, the head of the CFTC.
Piwowar nevertheless says the FSOC, thanks to the influence of the Fed, has gained a reputation for lack of transparency and unaccountability since its inception in 2011, and ridicules it as a breeding ground for government overreach.
In preparing for this speech, I thought a lot about what moniker I could use to best describe the FSOC. The Firing Squad On Capitalism [emphasis his]. The Vast Left Wing Conspiracy to Hinder Capital Formation. The Bully Pulpit of Failed Prudential Regulators. The Dodd-Frank Politburo. The Modern-Day Star Chamber. You get the point. There are countless terms I could use that are appropriately pejorative and at the same time entirely accurate. For the sake of clarity, I will stick with references to the two official nicknames of the FSOC — the “Council” or the “Unaccountable Capital Markets Death Panel.”
Among other things, the FSOC is in charge of designating non-financial institutions as systemically important, and therefore bringing them under the Fed’s regulatory control. The Fed’s lack of legal oversight over AIG helped exacerbate the financial crisis because it could not immediately gain access to its books, as it was able to do for Bear Stearns and Lehman. The reforms that have since come in under the Dodd-Frank, often referred to as “macroprudential regulation,” aim to combat that vacuum.
But Piwowar slams FSOC, and the Fed, for stealing this authority from the SEC.
Lest there be any confusion over the broad scope of “macroprudential regulation,” [Fed] Governor [Daniel] Tarullo reiterated in a speech last month that “any firm whose failure could pose systemic risk is subject to prudential regulation, quite apart from its relationship with [insured depository institutions].” Governor Tarullo is clearly asserting the Fed’s “alpha-dog” role and issuing a call to action for the Council, which is the body that was formed to look at cross-sector threats to financial stability. Ultimately, though, through a “macroprudential” approach the Fed would expand its reach by immediately pulling under its regulatory umbrella any firms designated as “systemically important financial institutions” (“SIFIs”).
In its attempt to gain authority over capital market actors, the Fed, through the Council, has been ignoring the talent and skills of the hundreds of subject matter experts in each of the SEC’s rulemaking divisions…The prudential regulators on the Council have been proceeding as if they themselves are the ones who know securities markets and investment products best.
An Obama appointee, Piwowar joined the SEC about a year ago. He previously served as the Republican chief economist for the U.S. Senate Committee on Banking, Housing, and Urban Affairs under Senators Mike Crapo (R-ID) and Richard Shelby (R-AL).
His views don’t seem to have changed much.