Friday, May 16, 2014

Fed Chair Yellen Tells Senate Panel That Asset Management Firms Can Be Designated as SIFIs

In testimony before the Senate Budget Committee, Fed Chair Janet Yellen affirmed that asset managers that are potentially a cause of systemic risk to the financial markets should be designated as systemically important financial institutions (SIFIs) and put under enhanced capital and liquidity standards. The Chair was responding to remarks by Senator Kelly Ayotte (R-NH), who noted that the Financial Stability Oversight Council should consider, when designating a SIFI, that asset management firms differ from banks.

With Congressional concern growing around how FSOC designates SIFIs, and an FSOC conference on asset management firms set for May 19, Chair Yellen agreed with Senator Ayotte that asset managers have different characteristics than banks. But she assured that FSOC does an extremely detailed analysis of a firm’s specific characteristics when considering SIFI designation. FSOC is trying to determine if stress on a firm could give rise to systemic risk. A number of different mechanisms are employed, said the Fed Chair, adding that there is no one size fits all. FSOC should clearly identify why a firm has been designated as systemically risky, emphasized the central bank chief. The Fed Chair is a member of FSOC, along with the SEC and CFTC Chairs, among others.