SEC chief backs 'systemic risk council' idea

Warning that the events of the last year provide a brutal reminder that markets are "neither self-regulating nor self-correcting,” the head of the Securities and Exchange Commission said today she favors a new proposal for federal regulators sharing oversight of companies that pose financial risks to the economy. SEC Chairman Mary Schapiro said she's "inclined toward" the idea floated this week by the head of the Federal Deposit Insurance Corp. for a new "systemic risk council" to monitor large institutions against financial threats. The council would include the Treasury Department, Federal Reserve, FDIC and SEC, according to the proposal by FDIC Chairman Sheila Bair. Congress and the Obama administration are working to craft an overhaul of U.S. financial rules to prevent a repeat of the crisis that plunged markets worldwide into distress. Speaking to the Investment Company Institute, the mutual fund industry's biggest trade group, Schapiro said she is concerned about an "excessive concentration of power" over financial risk in a single agency. Some key lawmakers have proposed that the Federal Reserve alone assume the role of systemic regulator. But Sen. Christopher Dodd, chairman of the Senate Banking Committee, said this week he is "more attracted to the council idea" than having a single regulator play that role. Policymakers want to replace the "too big to fail" model used by the government as it rushed in to rescue huge financial institutions caught up in the global crisis last fall. Regulators are calling for a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system. At the same time, Schapiro on today reaffirmed her position that the SEC must play a key role as an independent watchdog protecting investors in the new system of financial regulation. "There is a need for a regulator entrusted with responsibility for our capital markets," she said. For the SEC, "independence is indispensable." Staking out the SEC's position in the sweeping overhaul of the financial rule book that Congress and the administration have begun, Schapiro said it "would be a disaster" for that supervision over the markets to be split among various agencies. Additional reporting by Sara Hansard