As the Financial Stability Oversight Council prepared to hold its first meeting Friday, members of the panel faced open doubts from lawmakers and others about how fast it can move and what it can accomplish.

Lawmakers wondered aloud whether the council members would be hamstrung by interagency disagreements, and whether they could even agree on their top priorities, as regulators testified Thursday before the Senate Banking Committee.

"I want to know very specifically the areas of conflict that have arisen and the areas of conflict that you anticipate arising as you implement this legislation," said Sen. Mike Johanns, R-Neb.
Regulators tried to assure Congress that the new council was getting along fine.

"I don't think, senator, there are disagreements as such," said Treasury Deputy Secretary Neal S. Wolin. "I think on the question of what should be the appropriate transparency policy of the council, what should be the structure by which votes are taken, all those things, people have different views, but … I don't think I'm in a position to say there's been, you know, controversies or fault lines. It's been a good, cooperative effort in that respect."

Federal Reserve Board Chairman Ben Bernanke agreed.

"I have to tell you honestly, and I'm not just trying to put [on] a happy face here, is that in terms of the substance of the rule writings that we have so far addressed, I don't see any deep or principled controversies at this point," he said.

Yet there were signs of strife. The Office of the Comptroller of the Currency protested a move Monday by the Federal Deposit Insurance Corp. (FDIC) to complete its own securitization rule ahead of the requirements mandated by the Dodd-Frank reform act.

The Wall Street Journal reported that Treasury Secretary Tim Geithner, too, expressed concern about the FDIC's action, e-mailing several regulators to ask whether the rule should be delayed.
Though she did not mention it directly, FDIC Chairman Sheila Bair made it clear that, though she supports the new council, it should not be a tool used to interfere with the work of individual agencies. "I think, if we all start trying to rewrite each other's rules, … this council will become an impediment to, not a way to facilitate, reform," said Bair.

Some lawmakers and outside observers saw the incident as a bad sign. "I'm not sure [whether] that is indicative of how people want to treat the council," said Ernie Patrikis, a partner at White & Case.

Wolin used the hearing to reassure skeptics that the council's work would proceed quickly. It will release two requests for comment at Friday's meeting, he said, concerning criteria for designating nonbank financial companies as systemically important and how to enforce the so-called Volcker Rule, which bans institutions from proprietary trading and investments in private-equity funds.

"While we settle on structure, the council has already begun its work because its duties commenced immediately upon enactment," said Wolin. "Member agencies have already formed staff working groups to begin taking action. … We expect that the council will be in a position to take important steps toward fulfilling several of its core responsibilities at its meeting tomorrow."
Wolin said senior officials have already met to hash out the council's structure. Bylaws, which have been drafted, were expected to be discussed Friday.

One idea being discussed is to set up committees within the oversight council to handle specific issues, he said, such as designating nonbank financial companies as systemically important.
"The council members and their deputies would set the priorities for each of the committees, which will draw upon the expertise of each member agency and be chaired by one or more members," Wolin said.

For the Fed's part, Bernanke told lawmakers that the central bank is giving the Treasury Department technical and policy advice on how to set up the council. "We are working with the Treasury to develop the council's organizational documents and structure," he told the panel. "We are also assisting the council with the construction of its framework for identifying systemically important nonbank financial firms and financial markets utilities, as well as with its required studies on proprietary trading and private fund activities of banking firms and on financial-sector concentration limits."

In particular, regulators agreed Thursday that one of their top priorities is to identify systemically risky institutions. "Certainly from the FDIC's perspective, the top priority should be the designation of nonbank systemic firms," Bair said.

This effort alone could take significant time and resources, observers said.

"Ten years ago, I don't think anyone would have thought an institution like Bear Stearns would probably have qualified as potentially being systemically important," said Randall Krosner, a former Fed governor and now a University of Chicago professor. "There has to be flexibility in these principles and guidelines that take into account changing market circumstances. It's very important to get guidance out there, but the applications will necessarily depend on the particular circumstances, and that judgment will ultimately be up to the regulator."

Still, some observers said setting up the council is taking too long. The Treasury had been expected to convene the council's first meeting in September, but scheduling conflicts postponed it.

"It's been over three months since we've known there was going to be a Dodd-Frank Act, and now they are just getting around to their organizational meeting?" said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University.

Part of the reason for the lag, some said, is the lack of deadlines imposed on the council.
"There [is] no real time frame on this," said Oliver Ireland, a partner at Morrison & Foerster LLP. "I think they've got to get themselves moving and start figuring out how that group is going to operate."

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