The Securities Industry and Financial Markets Association’s (SIFMA) president and CEO, Tim Ryan, today testified before the House Financial Services Committee on perspectives on regulation of systemic risk in the financial services industry, building on testimony given in recent weeks.
“While there is no single, commonly-accepted definition of systemic risk, we think of ‘systemic risk’ as the risk of a system wide financial crisis characterized by a significant risk of the contemporaneous failure of a substantial number of financial institutions or of financial institutions or a financial market controlling a significant amount of financial resources that could result in a severe contraction of credit in the U.S. or have other serious adverse effects on economic conditions or financial stability,” said Mr. Ryan.
“We agree with Chairman Bernanke that [the financial markets stability regulator’s] mission should include monitoring systemic risks across firms and markets, rather than only at the level of individual firms or sectors; assessing the potential for practices or products to increase systemic risk; and identifying regulatory gaps that have systemic impact. One of the lessons learned from recent experience is that sectors of the market, such as the mortgage brokerage industry, can be systemically important, even though no single institution in that sector is a significant player,” he continued.
“Although the financial markets stability regulator’s role would be distinct from that of the functional regulators, it should have a more direct role in the oversight of systemically important financial organizations, including the power to conduct examinations, take prompt corrective action and appoint or act as the receiver or conservator of such systemically important groups. These more direct powers would end if a financial group were no longer systemically important,” he added.
“We believe that all systemically important financial institutions that are not currently subject to federal functional regulation, such as insurance companies and hedge funds, should be subject to such regulation. But we do not believe the financial markets stability regulator should play that day-to-day role for those entities,” he said.
To read the full written testimony:
http://www.sifma.org/legislative/testimony/pdf/Ryan-03-17-2009.pdf