Systemic Risk Council Comments on the Treasury Departments October 2017 Reports

WASHINGTON, D.C.—On February 23, 2018, the Systemic Risk Council submitted a comment letter to the United States Department of Treasury (UST) regarding the UST reports issued last October, entitled A Financial System That Creates Economic Opportunities: Capital Markets (Oct. 2, 2017) and A Financial System That Creates Economic Opportunities: Asset Management and Insurance (Oct. 26, 2017).

The Council believes that the UST Reports make a number of welcome recommendations that are broadly relevant to the stability of the financial system, but is concerned that they “do not give enough attention to the importance of resilience in capital markets, asset management and insurance.”

Rebuilding and maintaining a resilient financial system has been the central objective of the reform program since the global collapse in 2008. In light of the lack of attention given to resilience issues in the Reports, however, “there is a risk that stability issues will be neglected in any reforms pursued via Congress or the regulatory agencies.” The Council’s letter therefore focuses on outlining “an approach to thinking about stability beyond the core banking system” that “includes identifying markets on whose resilience the economy relies, and giving all relevant US agencies a statutory mandate to preserve a stable financial system.” The Council’s approach builds upon what the Council previously has identified as the five core pillars of the post-crisis reforms to make the financial system resilient (see Notes for Editors).

The Council’s primary recommendations to strengthen the resilience of capital markets, asset management, and insurance include the following:

  • The UST and Congress should give the SEC and the CFTC an explicit statutory objective for financial stability framed in terms of the resilience of the system;
  • The FSOC should articulate criteria for identifying systemically significant markets;
  • Barriers to entry should be reduced in any significant markets characterized by highly concentrated suppliers, so far as that is consistent with maintaining resilient intermediaries;
  • The Dodd-Frank provisions enabling stress testing of investment vehicles should not be repealed;
  • The authorities should be vigilant in ensuring that every type of financial intermediary and service provider can be resolved in an orderly way without the provision of core services being badly damaged, and without fiscal solvency support;
  • Constraints on securitization markets should not be relaxed (or should be relaxed only if headline equity requirements for banking institutions are increased to compensate, thereby maintaining the same degree of overall system resilience);
  • Securitizations should not be treated as high-quality liquidity by bank regulators and supervisors; and
  • Regulators should continue to impose initial margin requirements on uncleared derivatives (and other) transactions between members of a group that are part of distinct resolution subgroups.

The full text of the letter is available here:  Systemic Risk Council Comments to Treasury October 2017 Report



Notes for Editors:

  1. The independent, non-partisan Systemic Risk Council ( was formed to monitor and encourage regulatory reform of U.S. and global capital markets, with a focus on systemic risk. The Council is funded by the CFA Institute, a global association of more than 125,000 investment professionals who put investors’ interests first and set the standard for professional excellence in finance. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the CFA Institute. The Council works collaboratively to seek agreement on each of its recommendations.
  2. The five core pillars of system resilience that the Council underscored in its letter to G20 Finance Ministers and Governors in January 2017 are :
    • Mandating much higher common tangible equity in banking groups to reduce the probability of failure, with individual firms required to carry more equity capital, the greater the social and economic consequences of their failure;
    • Requiring banking-type intermediaries to reduce materially their exposure to liquidity risk;
    • Empowering regulators to adopt a system-wide view through which they can ensure the resilience of all intermediaries and market activities, whatever their formal type, that are materially relevant to the resilience of the system as a whole;
    • Simplifying the network of exposures among intermediaries by mandating that, wherever possible, derivatives transactions be centrally cleared by central counterparties that are required to be extraordinarily resilient; and
    • Establishing enhanced regimes for resolving financial intermediaries of any kind, size, or nationality so that, even in the midst of a crisis, essential services can be maintained to households and businesses without taxpayer solvency support—a system of bailing-in bondholders rather than of fiscal bailouts.

Systemic Risk Council Membership

Chair:                        Sir Paul Tucker, Fellow, Harvard Kennedy School and Former Deputy Governor of the Bank of England

Chair Emeritus:      Sheila Bair, President of Washington College and Former Chair of the FDIC

Senior Advisor:       Jean-Claude Trichet, Former President of the European Central Bank

Senior Advisor:       Paul Volcker, Former Chair of the Federal Reserve Board


Brooksley Born, Former Chair of the Commodity Futures Trading Commission

Baroness Sharon Bowles, Former Member of European Parliament and Former Chair of the Parliament’s Economic and Monetary Affairs Committee

Bill Bradley, Former U.S. Senator

William Donaldson, Former Chair of the Securities and Exchange Commission

Peter R. Fisher, Tuck School of Business at Dartmouth, Former Under Secretary of the Treasury for Domestic Finance

Jeremy Grantham, Co-Founder and Chief Investment Strategist, Grantham May Van Otterloo

Richard Herring, The Wharton School, University of Pennsylvania

Simon Johnson, Massachusetts Institute of Technology, Sloan School of Management

Jan Pieter Krahnen, Chair of Corporate Finance at Goethe-Universität in Frankfurt and Director of the Centre for Financial Studies

Sallie Krawcheck, Chair, Ellevate, Former Senior Executive, Citi and Bank of America Wealth Management

Lord John McFall, Former Chair, UK House of Commons Treasury Committee

Ira Millstein, Senior Partner, Weil Gotshal & Manges LLP

Paul O’Neill, Former Chief Executive Officer, Alcoa, Former U.S. Secretary of the Treasury

John Reed, Former Chairman and CEO, Citicorp and Citibank

Alice Rivlin, Brookings Institution, Former Vice-Chair of the Federal Reserve Board

Kurt Schacht, Managing Director, Standards and Advocacy Division, CFA Institute

Chester Spatt, Tepper School of Business, Carnegie Mellon University, Former Chief Economist, Securities and Exchange Commission

Lord Adair Turner, Former Chair of the UK Financial Services Authority and Former Chair of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation

Nout Wellink, Former President of the Netherlands Central Bank and Former Chair of the Basel Committee on Banking Supervision

* Affiliations are for identification purposes only. Council members participate as individuals and this letter reflects their own views and not those of the organizations with which they are affiliated.