Financial Services Committee Chairman Spencer Bachus submitted the following statement for the record at a hearing on the Financial Stability Oversight Council's annual report. Treasury Secretary Timothy Geithner appeared before the Committee to deliver FSOC's report.
"When financial reform was debated by Congress two years ago, Republicans suggested an alternative that would have consolidated the number of regulators. Instead, the Dodd-Frank Act passed by Congress eliminated one regulator, kept the others, added three more, and put them on the Financial Stability Oversight Council.
"We were told this 'super committee' of regulators was needed to act as an early warning system that would perceive threats far off in the distance and take action before these threats could metastasize into crises that bring down our economy.
"But two years after Dodd-Frank became law, there is little to no evidence the Council has followed through in any meaningful way to live up to these promises.
"Indeed, some of the most ardent supporters of Dodd-Frank are among the Council's harshest critics. Sheila Bair, the former FDIC chairman who served as a member of the Council, told the New York Times recently the 'F.S.O.C. is M.I.A.'
"Others have chided the Council for failing to live up to its most basic promises of accountability and transparency.
"Let me read from an article in the National Journal published on April 3rd of this year:
"The Financial Stability Oversight Council likes to boast about its transparency but it 'makes the Kremlin's Politburo at the height of the Soviet Union look open and democratic,' says Dennis Kelleher, president and CEO of Better Markets Case in point: this week's meeting -- the council's first in six months -- to approve guidelines for identifying firms that could pose a risk to the financial system. The council approved the guidelines unanimously without debate and didn't disclose what had changed from the draft stage [of the guidelines].
"In the regulators' defense, perhaps these meetings are perfunctory because members of the Council simply don't have the time for them. After all, they must rush back to their offices to write the hundreds of new rules required by Dodd-Frank.
"Regulators appear to be so preoccupied writing these new rules that they're missing the basics -- like safeguarding segregated customer funds and protecting investors from Ponzi schemes and other financial frauds. In just the past few months, we've seen regulators fail to protect the customers of MF Global and Peregrine Financial Group. Now there are questions about why regulators didn't take concrete action to stop LIBOR manipulation.
"It seems regulators are so busy trying to write rules against things like proprietary trading -- which even Chairman Volcker agrees was not a cause of the financial crisis -- that they are failing to fulfill their primary mission. Are they so busy writing tickets for jay walking that they're letting the robbers and thieves run loose?
"Rather than pass massive new laws that require hundreds of new regulations, it's a better use of limited resources to make sure regulators are enforcing the rules we already have. Clear rules and better enforcement of them will do more to protect consumers, investors and the financial system than a 'super committee' of regulators."