Sheila Bair on new watchdog group, Systemic Risk Council

Publication: Marketplace Radio

Author: Kai Ryssdal

06/06/2012 —Kai Ryssdal: It’s been said before, and it bears saying again: The biggest banks on Wall Street — the ones that helped bring us the economy of the past four years, the ones that were too big to fail — are even bigger now. JPMorgan Chase, Bank of America, those guys.

While she was the chairwoman of the FDIC, Sheila Bair tried hard — and succeeded to some degree — in getting regulators to follow up on what she regards as a key weakness in the American financial industry: Systemic risk. That one failure that’s gonna bring everything else down with it. Ms. Bair is now out of government and but still worried about systemic risk. She’s starting up a new watchdog group called the Systemic Risk Council to apply a little public pressure.

Sheila Bair, good to have you with us.

Sheila Bair: Thank you.

Ryssdal: Without putting words in your mouth, I wonder if we could define systemic risk as banking arrogance — and I know that’s a loaded term.

Bair: Oh, well, I think certainly there is probably a lot of hubris leading up to the crisis with both bank managers and, frankly, some regulators as well. I think banks — and it’s not just banks, I want to say financial institutions, because a lot of this was going on in what we call the shadow sector. It largely wasn’t being done by the traditional banks that take deposits and make loans — it was being done by investment banks and insurance companies like AIG and others. So I do think that that needs to be clarified. But if the risk-taking is such that whenever the losses occur, it’s going to hurt innocent bystanders among the general public, and that’s when a problem is systemic and action needs to be taken.

Read and listen to the full interview, Sheila Bair on new watchdog group, Systemic Risk Council, on the Marketplace website.