Council identifies non-bank financial companies for additional supervision

From The Washington Post
By Danielle Douglas
June 3, 2013

A government panel voted on Monday to place large non-bank companies that pose risks to the financial system under stricter supervision.

The Financial Stability Oversight Council vote, which took place in a closed session, sets the stage for a major shift in the oversight of a broad swath of big companies that play in financial markets, including private equity firms and hedge funds. Firms designated as “systemically important” will come under the thumb of the Federal Reserve and face a new regulatory paradigm that could change the course of their business…

Designated firms could enjoy what markets perceive as an implicit guarantee that the government will rescue them if they run into trouble, analysts say. That perception could lower the cost of borrowing and create a competitive advantage, they say.

“We’ll have only a quasi-capitalist system if only the largest firms have a lower cost of debt because of the risk they pose,” said Cornelius Hurley, director of Boston University’s Center for Finance, Law and Policy. Hurley, a former counsel to the Fed, said Dodd-Frank failed to create meaningful structural reforms for the nation’s largest firms.

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