Does anyone think that the government’s proposal to keep the list of systemically risky firms secret is actually a workable idea?
The new proposal (pdf) out of the House Financial Services Committee proposes to create a new framework for identifying financial firms that would threaten financial stability if distressed or have a nature, scope or mix of activities that pose a threat to the economy.
The proposal says the new financial regulatory council will make a list of the firms and then periodically revise the list of identified firms, adding or subtracting firms as the market changes. It then goes on to insist that the council may not publicly release the list of companies identified.
Is that realistic? In the first place, how can the regulators subject a company to heightened prudential scrutiny without the company figuring tout that they are on the list. And once the company knows it is on the list, doesn’t it have to disclose this to shareholders? It seems like being on the government’s list and being subject to exra regulatory scrutiny would be material information.
What’s more, investors and creditors are likely to be able to detect the differential regulatory treatment that comes with being on the list just by reading the companies annual reports and monitoring its relationship with its regulators.
We understand that there are good reasons the government does not want a public list of the firms deemed systemically risky. But there’s no way this list is going to stay secret.