Wednesday, May 06, 2009

Does the USA need a Systemic Risk Council?

YES, argued FDIC Chairman Sheila Bair said in testimony prepared for delivery to the Senate Banking Committee today.

She believes that there is a need to set up a Council or Committee to keep an eye on system-wide risks. To be effective, the Committee or Council should bring together the expertise of the U.S. Treasury, the Fed, the FDIC and the Securities and Exchange Commission.

Lots of us have been arguing for some time that there needs to be co-ordinated financial oversight instead of the overlapping patchwork the US has at present.

However, any such Committee or Council will only be effective if at least the following conditions are met:

1. The Council is appointed by the President of the USA.

2. It consists of either 5 or 7 individuals, appointed for 7 years.

3. No renewals of the term of Councillors are possible.

4. The Council has its own budget - and a sufficient one at that.

5. The Council can undertake or commission independent studies into the question of systemic risk.

6. The Council has the power to summon the heads of the Treasury, the Fed, the FDIC and the Securities and Exchange Commission - as well as any lesser officials in these and other relevant organisations (e.g. all companies, NGOs, consultancies, academics).

7. The Council is required to issue a quarterly "Systemic Risk Report" directly to the public (not to the President or to the legislature), covering at least the following: asset price bubbles, commodity price bubbles, gold price bubbles, stock price bubbles, credit bubbles, money supply bubbles, speculative bubbles and government debt bubbles.

However, as I have often pointed out in these columns, we are in the middle of a systemic crisis in spite of the fact that we have plenty of foreknowledge about it (and I have documented the many and varied authorities who were warning about the issue).

So the other measures that I recommended in my Open Letter to President Obama (measures which people in authority, I am pleased to see, are slowly coming around to) will remain equally necessary. Sphere: Related Content

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