On July 31st, the Wall Street Journal reported the Financial Stability Oversight Council may no longer seek to designate large asset managers as systemically important. Instead, the FSOC may focus on specific types of industry activities deemed risky. Risky Business. The readout from the FSOC’s July 31, 2014 meeting noted that “The Council directed staff to undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the asset management industry.” It also indicated it will monitor the effectiveness of the SEC’s new money market rules.
“Too Big to Fail” Subsidy Waxes and Wanes
On July 31st, Reuters summarized the testimony before the Senate Subcommittee on Financial Institutions and Consumer Protection concerning a GAO report on whether the largest banks receive a de facto subsidy in the form of lower interest rates as a result of the perception that they are “too big to fail.” Witnesses said that while the largest banks did appear to have benefited in 2007-2009, those benefits weakened or were eliminated in 2013. The benefits may rise again, however, in a future financial crisis. Cyclical Subsidies.
Blaming the Victim
On July 28th, DealBook discussed the “sophisticated investor” defense, where financial firms claim that alleged victims were too savvy to be defrauded. Blaming the Victim.