---- Below is a fill in the blank letter intended to be sent to members of the U.S. Senate informing them of your and NASAA’s support for the creation of a systemic risk council comprised of both state and federal financial regulators. Attached to it is a joint letter signed by NASAA, NAIC, and CSBS that was sent to the leadership of the respected committees with jurisdiction over said council. The joint letter is referenced in the fill in the blank letter and the two letters are intended to be sent together in an attempt to continue to foster support for the council approach.
June 12, 2009
The Honorable______
Address______
Washington, DC20510
RE: Systemic Risk Council
Dear Senator:
As the state securities regulator charged with enforcing the state’s securities laws and protecting investors in [state], I want to express my support for the creation of a systemic risk council comprised of both state and federal regulators charged with mitigating risks that threaten the entire economy and market based system as a whole.
As the Obama Administration and Congress look to modernize the nation’s financial services regulatory architecture, in the wake of the economic crisis, one of the central design questions is how to monitor and regulate excessive risk in the marketplace. Policy experts, economists, and Main Street America all agree that a systemic risk regulator is necessary to prevent catastrophic damage from those institutions or products that pose a threat to the entire economy and financial market system. While people agree on the need for the creation of a systemic risk regulator,there are differing views on the composition of a new regulator. Some people believe the powers of a new systemic risk regulator should lie with the Federal Reserve while others believe the new regulator should be comprised of representatives from existing regulators forming a council approach.
Recently, the North American Securities Administrators Association (NASAA), the Conference of State Bank Supervisors, and the National Association of Insurance Commissioners sent a joint letter to the leadership of the Senate Committee on Banking, Housing, and Urban Affairs outlining our support for the creation of a systemic risk council composed of both state and federal regulators. State regulators are essential to the success of the Council model of systemic risk regulation. With our unique position on the frontlines of investor protection, we provide ground-level detection by gathering a huge volume of information through examinations of industry participants and complaints from investors. When that information reveals risks and abuses, we take appropriate actions, ranging from referrals to fellow regulators to enforcement actions that stop illegal conduct and remedy past harms. Again and again, state regulators have been the first to identify the risky products and business practices that contribute to unacceptable levels of systemic risk.
Again, I thank you for considering a systemic risk council comprised of both state and federal regulators as Congress embarks on reforming the financial regulatory structure. If you have any questions or need additional information on this or other financial services matters, please do not hesitate to contact me at ( ) ______or Deborah House, NASAA’s Director of Policy at 202-737-0900.
Sincerely,
State Securities Administrator
May 18, 2009
The Honorable Christopher J. DoddThe Honorable Richard Shelby
Chairman Ranking Member
Senate Committee on Banking, Senate Committee on Banking,
Housing and Urban AffairsHousing and Urban Affairs
534 DirksenSenateOfficeBuilding534 Dirksen Senate Office Building
Washington, DC20510Washington, DC20510
The Honorable Barney Frank The Honorable Spencer Bachus
ChairmanRanking Member
House Committee on Financial ServicesHouse Committee on Financial Services
2129 RayburnHouseOfficeBuilding2129 RayburnHouseOfficeBuilding
Washington, DC20515Washington, DC20515
Dear Chairmen Dodd and Frank, and Ranking Members Shelby and Bachus:
The Conference of State Bank Supervisors (CSBS), the National Association of Insurance Commissioners (NAIC) and the North American Securities Administrators Association (NASAA) have each proposed principles for financial services regulatory reform that we believe will help guide the ongoing policy debate over the changes necessary to strengthen the nation’s financial services regulatory structure. The unique experiences of state regulators on the front lines of consumer and investor protection provide the basis for our suggestions that any regulatory reform measure must recognize the rights and contributions of our members to the effective and efficient regulation of the financial system.
At this time, we want to address one particular issue that has received considerable attention from your Committees in recent months – identifying and managing systemic risk in our financial markets. We encourage you to consider several basic recommendations from state banking, insurance and securities regulators as you reflect upon structural methodologies to address this challenge. After analyzing a number of strategies, we have concluded that the responsibility of identifying and managing system risk should not be assigned to a single agency but should be carried out by a council made up of state and federal regulators. We believe this approach holds the greatest promise of success in evaluating and controlling systemic risk in the marketplace because it will formalize regulatory cooperation and communication among state and federal regulators that oversee our financial markets.
Membership. The systemic risk council should include representatives from all federal and state banking, insurance and securities regulators. This holistic approach is effective and efficient. It creates a body with access to all relevant information regarding the accumulation of risk in our financial system, and it draws upon the existing expertise and proficiency of each functional regulator. It also minimizes the possibility of regulatory capture or philosophical bias that might arise if an existing federal agency were tasked with overseeing systemic risk. As a further measure against undue influence or capture, we believe the council should be headed by an independent chair. This would maintain balance and reduce the likelihood that any one member of the council or any one regulatory perspective exerts undue influence over the council’s policies and operations.
Including state regulators on the council is necessary and appropriate. In all financial sectors, state regulators gather large amounts of information from industry participants and from investors. Consequently, they serve as an early warning system. As a general proposition, state regulators are often the first to identify risks and related trends that are substantial contributing factors to systemic risk.
Function. The council should be tasked with collecting and evaluating data from all financial sectors to assess existing levels of systemic risk as well as the identification and analysis of new financial products or business practices that may be expected to increase levels of risk. In addition, when the council perceives the need for corrective measures, it should issue recommendations to the regulators with primary authority over the market sector in question. Those recommendations may range from the suggestion that various actions be taken, including emergency market intervention, the promulgation of new regulations, or even enforcement actions. In addition, the council would, where appropriate, recommend the passage of new legislation at the federal or state level.
Authority. The council should have the authority to require industry participants and other agencies to share information relevant to the mission of risk assessment. In other respects, however, its powers should be carefully circumscribed and its primary focus should remain the collection and analysis of data and issuing appropriate recommendations, leaving the authority of existing functional regulators intact.
In conclusion, as the state organizations representing the three major sectors of financial services regulation, we are committed to working with Congress to address the problem of systemic risk in our financial markets. We believe that the systemic risk council model described above is the optimal approach, as it recognizes and incorporates the states’ vital role in financial services regulation and consumer protection.
Sincerely,
Timothy J. KarskyRoger SevignyFred J. Joseph
CSBS ChairmanNAIC PresidentNASAA President
North Dakota BankingNew Hampshire InsuranceColorado Securities
CommissionerCommissionerCommissioner
cc: Senate Banking, Housing, and Urban Affairs Committee members
House Financial Services Committee members