The regulatory drive to designate mutual funds or their managers as systemically important financial institutions increasingly looks like a campaign to extend the power of central banks and other banking regulators over global capital markets. As the Financial Stability Oversight Council sets the agenda for its May 19 conference on asset management, media leaks suggest that the Council is forging ahead in considering mutual funds or their managers for designation—despite the fact that they pose no threat to the stability of the financial system.
Former regulators, academics, and U.S. lawmakers agree that mutual funds and their managers are fundamentally different from the highly leveraged institutions at the center of the financial crisis and post-crisis reforms. Yet the FSOC and its global counterpart, the Financial Stability Board, seem determined to treat mutual funds and advisers as if they pose the same risks to the financial system as banks—and to subject them to bank-style capital requirements and supervision.
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