May 20, 2014

FSOC Designating in the Dark

Hester Peirce

Former Senior Research Fellow
Summary

In a new blog post, Mercatus Center senior research fellow Hester Peirce raises concerns about the economic impact of heavily regulating asset managers and the flawed FSOC oversight process.

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The Financial Stability Oversight Council today is holding an asset management conference as it considers whether members of the industry should be designated an non-bank systemically important financial institutions. In a new blog post, Mercatus Center senior research fellow Hester Peirce raises concerns about the economic impact of heavily regulating asset managers and the flawed FSOC oversight process.

"As [SEC] Commissioner [Daniel] Gallagher points out, if bank regulators get their way, they will crush the capital markets--which are meant for risk-taking--under bank-like regulations. An analysis by the American Action Forum, also released last Thursday, suggests that investors will pay a hefty price--in the form of lower returns--for designation.

"Bank regulators are understandably skittish after the crisis, but they cannot allow their fear to turn every financial institution into a bank, protected with deposit insurance and guarded by bank regulators. Doing so would not prevent failures, but it would deprive investors of the ability to put their money to work and entrepreneurs of a vitally important source of financing their dreams and our future economic growth."

Click here to read the full post.