Sunday's New York Times contained an article entitled, "Too Big to Fail, or Too Trifling for Oversight?". The piece says, "It is not very often that business people head to Washington to explain how unimportant they are. But over the last several months, executives from more than two dozen financial companies and their trade groups have paraded into the Treasury Department, the Federal Reserve and other government agencies to try to persuade top regulators that they are not large or risky enough to threaten the financial system if they should ever collapse. Big insurers like the Mass Mutual Financial Group and Zurich Financial Services; hedge funds like Citadel and Paulson & Company; and mutual-fund companies like BlackRock, Fidelity Investments and Pacific Investment Management Company have all been making the rounds, according to documents filed by the regulatory agencies."
The Times explains, "What they are all hoping to avoid is being designated 'systemically important' by a council of financial regulators. That would require them to face stricter federal oversight and keep more cash on hand, which they fear would erode profits.... Deciding which firms should be deemed 'systemically important' is at the heart of a package of new financial rules that aim to prevent a repeat of the recent financial crisis. But the lack of specific criteria from regulators so far has created uncertainty about who will get tagged."
The article continues, "More clarity may come later this summer when regulators are expected to put out a more detailed proposal. Criteria like size, how connected the firms are to each other, and overall risk levels will be more carefully defined. Then, after regulators analyze the data, the designated companies will be notified and given a chance to argue why they do not pose a major financial threat. This means final determinations will not be made until the middle of 2012, at the earliest. That, of course, is just fine with many of the companies involved."
It adds, "Other financial giants have made their own arguments to regulators. In their comment letters, big asset managers like BlackRock and Fidelity claim that since they manage money on behalf of individual investors, the firms pose little risk to the system. General Electric, a huge lender to businesses and consumers, told Treasury officials that it should not be put in the same category as Goldman Sachs since it does not engage in risky derivatives trading or make other speculative bets with its own money, according to a person close to the discussions."
Finally, the Times says, "Meanwhile, several large financial companies are finding sympathetic ears in Washington. Barney Frank, the ranking member of the House Financial Services Committee and one of the chief architects of the new rules, said he did not believe life insurers and mutual-fund companies were risky enough to require heightened supervision." They quote Frank, "If you look at it, they weren't the causes of the problems."
