Investors’ Working Group says no to Fed as SiRR

The Investors’ Working Group, an independent coalition of leading lights in economic policy and finance has issued a final paper of recommendations on regulatory reform in the United States.  They do NOT want the Federal Reserve as Systemic Risk Regulator (SiRR) because the Fed has been “tarnished” by a reckless campaign of “easy credit” and “lax oversight.”  Moreover, the group rejects the Obama Administration regulatory reform plan, saying it is “a start” but not nearly good enough. This is how I characterized Administration efforts as well when the Obama reform agenda was released in June.

The group includes Arthur Levitt, William Donaldson, Brooksley Born, and Jeremy Grantham amongst others. It is a vey well-respected group and a wide cross-section politically. I should also add that economist James K. Galbraith testified before Congress last week making similar points.  His statement can be read here.

Below are snippets from the Reuters summary and an embedded PDF of the actual recommendations.  Enjoy.

Some major U.S. investors and former securities regulators warned against letting a "tarnished" Federal Reserve take charge of preventing systemic risk in financial markets, rejecting a central plank of the Obama administration’s response to the global credit crisis.

The Investors’ Working Group, a coalition led by former Securities and Exchange Commission Chairmen William Donaldson and Arthur Levitt, on Wednesday urged the United States to create an independent watchdog to police risk management.

This is the most significant stance by an outside group to date and will help fuel the heated debate over financial regulation and strengthen Congressional opposition to the administration’s push for the Fed to monitor large, interconnected financial firms whose failure would compromise the banking system…

"The Fed has an independent role, full employment and steady interest rates," Donaldson said in an interview. "That’s a huge job. If you start to give them other things to do, you begin to dilute the principal role that they have."

The group said the new watchdog, the Systemic Risk Oversight Board, would be appointed by the president, be accountable to Congress, have a full-time staff, and perhaps could evolve into a full-fledged regulator.

It also called for new limits on banks’ proprietary trading, more regulation of derivatives, higher capital requirements for banks, subjecting insurers to federal supervision, and requiring more "meaningful" oversight of credit rating agencies.

The group represents investors who oversee some $3 trillion of assets. Among its members are former Commodity Futures Trading Commission chair Brooksley Born; money managers Jeremy Grantham of GMO LLC and Bill Miller of Legg Mason Capital Management Inc; a top official of the California Public Employees’ Retirement System, the largest U.S. public pension fund, and personal finance columnist Jane Bryant Quinn…

Investors Working Group Report July 2009

Members of the Investors’ Working Group include:

Co-chairs:

William H. Donaldson, CFA, chair, Donaldson Enterprises and former chair, U.S. Securities and Exchange Commission

Arthur Levitt Jr., senior advisor, The Carlyle Group and former chair, U.S. Securities and Exchange Commission

Members:

Mark Anson, CFA, president & executive director of investment services, Nuveen Investments

Brooksley Born, retired partner, Arnold & Porter and former chair, U.S. Commodity Futures Trading Commission

Joe Dear, chief investment officer, California Public Employees’ Retirement System, and chair, Council of Institutional Investors

David Fisher, chair, The Capital Group International

Harvey J. Goldschmid, Dwight Professor of Law, Columbia Law School and former commissioner, U.S. Securities and Exchange Commission

Jeremy Grantham, co-founder & chair, GMO, LLC

William R. Hambrecht, founder, chair & CEO, WR Hambrecht + Company

John D. Markese, president, American Association of Individual Investors

Bill Miller, CFA, chair & chief investment officer, Legg Mason Capital Management, Inc.

Ira Millstein, senior partner, Weil, Gotshal & Manges LLP and senior associate dean for corporate governance, Yale School of Management

Nell Minow, editor and co-founder, The Corporate Library

Peter Montagnon, chair, International Corporate Governance Network and director of investment affairs, Association of British Insurers

Jane Bryant Quinn, director & personal finance columnist, Bloomberg LP and contributing editor, Newsweek

Barbara Roper, director of investor protection, Consumer Federation of America

Kurt Schacht, managing director, CFA Institute Centre for Financial Market Integrity

Ellen Seidman, senior fellow, New America Foundation and Executive Vice President, ShoreBank Corporation

Website

Investors’ Working Group – Council of Institutional Investors website