'Systemically Important' Label (For Nonbank Financial Firms) Divides U.S. Regulators - WSJ

'Systemically Important' Label Divides U.S. Regulators
By VICTORIA MCGRANE - WSJ
May 6, 2011

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CHICAGO — Federal regulators appeared divided Thursday over what to reveal about how they would decide which nonbank financial firms should get the "systemically important" label for being big enough to threaten the financial system. Firms with such a designation would be subject to stricter capital standards and regulations.

Federal Deposit Insurance Corp. Chairman Sheila Bair said in a speech at a conference here that regulators needed to "move forward and develop some hard metrics to guide" the designation process. She told reporters that "the more public information we can provide on this, the better."

However, Mark Van Der Weide, a senior associate director at the Federal Reserve, stressed the need for regulators to retain discretion in the process and warned: "Don't expect perfectly clear numerical guidelines from us."

The Financial Stability Oversight Council, set up by Congress last year in revamping financial-oversight laws, is deciding which nonbank financial firms will get the label. The Fed and the FDIC are both members of the council.

It is in dispute whether a financial firm labeled systemically important would be less or more likely to be bailed out by the government if it ran into trouble. The Dodd-Frank law aims to prevent future government bailouts by imposing stricter rules on such firms and giving regulators tools to dismantle them in an orderly way in a crisis.

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More: http://online.wsj.com/article/SB10001424052748704810504576305523089555728.html

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