Nov. 3, 2023
Good afternoon, Secretary Yellen. I want to thank the Council, the staff, and you for developing these updated guidance documents regarding non-bank financial company designations, which I am pleased to support.
History is replete with times when tremors in one corner of the financial system or at one bank or financial institution spill out into the broader economy. When this happens, American workers, businesses, and families inevitably get hurt.
Such risk can emanate from any part of the financial system—whether it’s from the banking or non-bank sectors.
As Americans, we all have lived through such events and witnessed how they have affected American families and workers. As I look around this Council, it occurs to me that many of us have lived through them in our professional lives as well.
Chair Powell and Chair Gruenberg, I believe you both may have the most seniority on these matters, as more than 30 years ago you each worked on cleanup related to the savings and loan crisis—one of you at the U.S. Department of the Treasury, the other with the Senate Banking Committee. Secretary Yellen and Vice Chair Barr, while in previous roles, lived through some of these events in the late ’90s, related to risk emanating from foreign debt markets. I vividly recall in 1998 witnessing the near collapse of the highly levered hedge fund Long Term Capital Management (LTCM).
In the then-President’s Working Group report after LTCM’s near collapse, we found that the event “highlighted the risks of excessive leverage, and the possibility that problems at one financial institution could potentially pose risks to the financial system as a whole.”
I think nearly all of us around this table worked through the unfortunate events coming out of the 2008 financial crisis. That crisis emerged from both the banking and non-bank sectors, including mortgage originators, investment banks, and even the then-largest insurance company, AIG.
Thus, in establishing this Council after the ’08 crisis, Congress empowered the Council with the authority to designate non-bank financial companies as systematically important financial institutions (SIFIs), which would then be regulated and supervised by the Federal Reserve.
Over the past decades, the non-bank sector has continued to grow—and by some measures, it currently outpaces the size of the commercial banking sector.
Thus, I believe the guidance we’re considering today is important in reinvigorating the Council’s designation process in a manner consistent with Congress’s vision.
It will restore critical elements of the initial rule that the first Council—that I believe Chair Gruenberg and I were a part of—first adopted in 2012.
As important as today’s step is, I believe each of our agencies have important roles within our respective authorities to enhance the resiliency of the financial system.
At the SEC, we thus far have finalized rules regarding money market funds and shortening the settlement cycle, among others.
We have important ongoing work with the Federal Reserve, the Treasury Department, and the Commodity Futures Trading Commission (CFTC) to enhance the resiliency of the Treasury markets.
We also have critical work, along with Chair Behnam and the CFTC, regarding updates to Form PF. I look forward to completing this project, as this data is so critical to our Council’s work.