Federal financial regulators on Thursday sought comment from asset managers such as PIMCO and BlackRock on the threats that their companies could pose to the financial system, the latest move in their investigation into how much regulation is needed for the firms.
The Financial Stability Oversight Council, the super-regulatory body comprising all the major financial regulators, approved a notice seeking public comment on asset managers at its meeting at the Treasury Department Thursday.
The council, created by the 2010 Dodd-Frank financial reform law to track threats to the financial system, has the power to designate non-bank financial firms “systemically important” and to regulate them as if they were big banks.
The council has already designated a handful of insurance companies as systemically important financial institutions and has been looking into the possibility of similar labels for asset managers.
“There is no predetermined outcome” to the council’s inquiry, said Treasury Secretary Jack Lew, who heads the group.
Lew said the regulators would seek information regarding the liquidity and leverage involved in asset management, as well as their operations and how they would be closed safely in case of a failure.
Federal Reserve Chairwoman Janet Yellen called the council’s efforts to learn more about the risks involved in asset management “critically important.”
Critics of the council have said that the “systemically important” label effectively gives those companies the status of “too big to fail.” They also have faulted the process for designating companies systemically important for not being open enough.
Asset managers say they do not pose risks to the broader financial system or economy, because they manage clients’ money and could simply return that money in case of distress.
Lew has acknowledged that the designation process, which is still relatively new, could stand to be improved. All the regulators in the council agreed to seek public comment, including the heads of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, the National Credit Union Administration, and the Consumer Financial Protection Bureau. Securities and Exchange Commission Chairwoman Mary Jo White also agreed, although she noted that regulation of asset management already falls within the SEC’s purview.
Lew said it’s “very important that we determine whether or not there’s a need for action” and to act quickly if there is.
Financial Services Roundtable President Tim Pawlenty welcomed the request for industry comment, saying that it is “a positive step in the right direction and the industry stands ready to work with regulators to provide input.”
