And then there were none.
The Financial Stability Oversight Council unanimously agreed Oct. 17 to end its extra scrutiny of Prudential Financial Inc.
PRU, -1.87%
, the only remaining non-bank firm still designated as a “systemically important financial institution,” or SIFI.
Related: Prudential Financial escapes U.S. oversight as FSOC supervision now strictly for banks
Under an approach strongly recommended by Treasury in November 2017 , FSOC would end its effort to impose enhanced regulatory safeguards on individual nonbank financial firms like Prudential. FSOC has now accomplished that deregulatory objective— it is no longer subjecting any firms that aren’t banks to enhanced regulatory supervision.
However, the deregulatory move was supposed to be paired with the development of guidelines for an “activities-based” approach to systemic risk regulation. Treasury also specifically recommended last November that FSOC start reviewing potential risks to financial stability from activities and products that may lead to a firm’s failure—and identifying factors that would mitigate those risks.
A Treasury spokesman did not respond to a request for comment on the timing of the new activity-based guidelines.
Gregg Gelzinis, a research associate at the Center for American Progress, an independent nonpartisan policy institute, said Mnuchin’s FSOC has thoroughly rejected its mission. “A year after the report was released, the FSOC has not yet publicly identified a single product or activity that could threaten financial stability,” said Gelzinis in an interview.
“The mix of activities at a firm could also make it systemically important. The activities-based approach ignores that fact,” says Gelzinis. “A firm’s failure could threaten financial stability even if it did not engage in a specific activity or offer a specific product that by itself was systemically risky,” according to Gelzinis.
Dennis Kelleher, president of financial reform non-profit Better Markets, agrees. “Presumably because they know the public disagrees, deregulators rarely want to admit that they are deregulating big, dangerous financial conglomerates. Typically, they create a smoke screen to hide behind and pretend to actually do something else,” Kelleher told MarketWatch in an email. “Here, that smokescreen is fatally deficient and nonexistent activities test,” said Kelleher.
Non-bank financial firms like Lehman Brothers, American International Group, Merrill Lynch—and even the financial arms of industrial companies like General Motors and General Electric—threatened financial stability during the financial crisis. Lehman filed bankruptcy and disappeared, GM and AIG were temporarily majority owned by the federal government after massive taxpayer bailouts and Merrill Lynch was forcibly merged with another more healthy firm that also received federal bailout funds.
Source : MTV
