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Bair, Volcker Lead New Group Looking to Accelerate Financial Market Reforms

Joe Mont | June 11, 2012

The slow pace of Dodd-Frank Act rulemaking has prompted some familiar faces from the worlds of finance and government to join forces and turn up the heat on regulators.

The Systemic Risk Council—a private sector, volunteer group led by former Federal Deposit Insurance Corp. chair Sheila Bair—will meet for the first time on Monday, June 18 to “monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk.” 

The independent, non-partisan council was formed by CFA Institute, a global association of investment professionals, and The Pew Charitable Trusts, a non-profit organization that focuses on public policy issues. Among its members will be Senior Adviser Paul Volcker, former chairman of the Federal Reserve and namesake of the “Volcker Rule.”

According to Bair, concerns over the “slow progress of regulators and standard setters” prompted the creation of the Systemic Risk Council. It will “monitor and evaluate the activities of those with the Congressional mandate to develop and implement Dodd-Frank provisions related to systemic risk,” including the Financial Stability Oversight Council (FSOC) and the Department of the Treasury's Office of Financial Research.

The law firm Davis Polk issues a monthly report on the Dodd-Frank rulemaking process. As of June 1, 2012, a total of 221 requirement deadlines have passed. Of these, 148 (67%) were missed, compared to 73 (33%) that resulted in finalized rules. In addition, 110 (27.6%) of the 398 total required rulemakings have been finalized; 144 (36.2%) rulemaking requirements have not yet been proposed. 

“The great challenge is to devise a system to identify risks that threaten market stability before they become a danger to the general public,” Bair said in a statement. “As evidenced by the 2008 crisis and even recent headlines, we need a more effective and efficient early-warning system to detect issues that jeopardize the functioning of U.S. financial markets before they disrupt credit flows to the real economy. Two of the most critical tasks are how to impose greater market discipline on excess risk taking and effectively end the doctrine too-big-too-fail.”

In an announcement last week that detailed its creation, the Systemic Risk Council will evaluate and provide reports and commentary on the existing efforts of regulators “to design and implement a credible and globally-coordinated systemic risk oversight function.” 

“Despite the magnitude of the financial crisis, prospects for major reform of regulatory systems are inadequate and vague,” said John Rogers, president and CEO of the CFA Institute and a Systemic Risk Council member. “This council will serve as an essential sounding board for systemic risk reforms focused on strong investor protection, and offer a critical voice to promote the enforcement of regulations, financial disclosure and transparency.”

“The reforms to our nation's financial system enacted by Congress and signed by the president in 2010 were an important first step,” said Rebecca Rimel, president and CEO of The Pew Charitable Trusts. “The task now is to implement these reforms, especially those related to systemic risk.”

When the council meets later this month in Washington, D.C., it plans to “issue a call to action” and further detail its objectives and future plans.

In addition to Bair and Volcker, other members of the System Risk Council include: Brooksley Born, former U.S. Commodity Futures Trading Commission chairman; Bill Bradley, former U.S. Senator (D-NJ); William Donaldson, former SEC chairman; Harvey Goldschmid, former SEC commissioner;  Jeremy Grantham, co-founder and chief investment strategist of Grantham Mayo Van Otterloo (GMO); Chuck Hagel, professor at Georgetown University and a former U.S. Senator (R-NE); Richard Herring, The Wharton School; Simon Johnson, Massachusetts Institute of Technology Sloan School of Management; Hugh Johnston,executive VP and CFO, PepsiCo; Ira Millstein, Columbia Law School Center for Global Markets and Corporate Ownership; Maureen O'Hara, Cornell University's Johnson School of Management; Paul O'Neill, former CEO of Alcoa and former U.S. Treasury secretary; John S. Reed, former chairman and CEO of Citicorp and Citibank; and Alan Simpson, former U.S. Senator (R-WY).