June 25, 2024

Regulators Seek Ways to Determine Which Financial Firms Are Crucial

A panel of officials from the Federal Reserve Board, the Treasury Department and the agencies overseeing banking and securities markets told members of the Senate Banking Committee that they would seek public comment on additional guidelines and gauges they are considering in deciding which companies will be included.

Regulators face a January 2012 deadline to put the heightened regulatory standards in place, but there has been some hope in the financial industry and Congress that decisions about what firms fall under the designation will come sooner. That would eliminate uncertainty over the breadth of the new rule’s embrace. Officials indicated that they hoped to release a package of proposed rules this summer.

The designation of systemically important financial institutions was included in the Dodd-Frank Act as a way of addressing the problem of companies being considered too big to fail. Companies deemed crucial to the stability of the broad financial system will be overseen by the Federal Reserve Board in addition to their usual regulators.

Bank holding companies with more than $50 billion in assets automatically fall under the designation. But it is expected that some insurance companies, hedge funds and other companies involved in financial and money markets might require an additional level of scrutiny to guard against threats to the banking system and financial markets.

“I think more details are necessary,” said Ben S. Bernanke, chairman of the Federal Reserve. “I support providing more information to the public and getting public comment.”

Mr. Bernanke said that while he doubted regulators could “provide an exact mechanical formula that can be applied without judgment,” they could lay out objective criteria that they consider most important in making the designation.

But the decision also requires some subjective judgment, Mr. Bernanke added, indicating that the decisions would not be so cut and dried as to eliminate questions over why one company fit the bill and another did not.

Senator Patrick J. Toomey, a Republican from Pennsylvania, urged the regulators to leave their proposals on the subject open for public comment for at least 60 days, roughly double the comment period that regulators have been using for many of the rules being drawn up to carry out aspects of the Dodd-Frank Act.

While none of the regulators would commit to that, several said they supported the idea. Mary L. Schapiro, chairwoman of the Securities and Exchange Commission, said a “robust comment period” would help to clear up much of the uncertainty around the “systemically important” designation.

The Banking Committee also voted 12-10, along party lines, to send to the full Senate the nomination of Peter A. Diamond to the board of governors of the Federal Reserve System.

It was the third time Mr. Diamond had been approved by the Senate panel, but the nomination has yet to come to a vote in the Senate. The Senate adjourned last year without acting on the second nomination, and the first nomination was returned to the White House on a procedural objection.

Republicans on the Senate committee universally opposed Mr. Diamond, an M.I.T. professor and Nobel Prize winner, raising doubts about whether Democrats could gather the 60 votes necessary to bring the nomination to a vote on the floor of the Senate.

Senator Richard C. Shelby, a Republican from Alabama, said he still viewed Mr. Diamond as “an old-fashioned big government Keynesian” who was not a good person to join the Fed “at this point in our financial history.”

The Senate Banking Committee also approved several other nominations. David S. Cohen was approved as under secretary for terrorism and financial crimes in the Treasury Department on a 18-4 vote. A few senators of both parties objected to the nomination because, they said, they did not believe Mr. Cohen adequately indicated that he would support enforcement of economic sanctions against Iran.

Several other nominations were approved by the committee on a unanimous voice vote. They were: Daniel L. Glaser to be assistant secretary for terrorist financing at Treasury; Wanda Felton to be first vice president of the Export-Import Bank of the United States; and Sean Robert Mulvaney to be a director of the Export-Import Bank.

This article has been revised to reflect the following correction:

Correction: May 12, 2011

An earlier version of this article incorrectly included one name among the nominees approved by the Senate Banking Committee. The committee did not vote on Timothy G. Massad’s appointment to the post of assistant secretary for financial stability at Treasury.

Article source: http://feeds.nytimes.com/click.phdo?i=5e01ca789ec8659e58d77d97e3febc97

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