BETTER MARKETS LAUDS FSOC ON ITS FIRST FINAL RULE

Dennis Kelleher, president and chief executive officer of Better Markets, praised the Financial Stability Oversight Council release of its first final rule dealing with systemic risk by announcing the way they will designate large payment clearing and settlement companies as systemically important:

“In its first final rule, the Financial Stability Oversight Council sent a loud and clear message today that it takes systemic risk seriously and is going to be aggressive in making the financial system stronger. FSOC adopted a test for systemic risk that includes historic as well as future analysis, as Better Markets urged it to do in the comment process. This type of analysis is an important step in preventing another crisis like the one that hit in 2008, when we learned too late that too much risk analysis relied too heavily on backward-looking only models. Such historic-only analysis is simply incomplete and misleading.

“FSOC wisely adopted rules that look back at what has happened and forward at conditions that might occur in the future using a standard of “extreme but plausible market conditions,” as proposed by Better Markets.

“Importantly, FSOC rejected industry lobbying that would have weakened its authority to monitor systemic risk for large clearinghouses, banks and other firms that process payments and settlements, which are the lifeblood to the financial system. FSOC dismissed a safe harbor proposal advocated by industry, which would have resulted in a narrow and incomplete bright line test to determine whether a clearinghouse would be deemed systemically important. Instead, the council adopted a broader measure, which will take into account the crucial market relationships between volume of business, volatility of risk exposure and interconnectedness with other firms, as advocated by Better Markets.

Wallace Turbeville, derivatives specialist for Better Markets, added, “This rule will definitely make the financial system safer, more transparent, and less likely to fail. While there is still a long way to go and many rules to come, it’s a terrific start for FSOC and its mission.”